Operating Lease:

Lessor- M/S Khivraj Tech Park Pvt. Limited baring its registered office at #1 Sidco Industrial
Estate, Guindy, Chennai, Tamil Nadu – 600032

Lessee – M/S force 10 networks India Pvt. Limited having it registered office at 127/11

Wellington plaza,Ist floor Anna salai ,Chennai -600002

Lease term – 15 years:

Asset for lease – 42,943 sq. ft SBA of fully fitted office area consisting of the 7th and 8th
office floor in the block fortius of Olympia Technology Park.

1) The Lessee being desirous of taking on lease the above premises, for the
purpose of carrying on its business operations, has approached the lessor.

2) The Lessor has agreed to give on lease the premises to the lessee on the
terms and conditions put forth by the Lessor which are as follows:

a) Rent – 50,000 per month.

b) Interest fee security deposit – 5 months’ rent.
c) The rent should be paid on or before 7th of every month.
d) Lessee should give at least one-month prior notice to Lessor for vacating the premises.
e) The rent will be increased @10% every year.
f) An electricity charges of the premises should be borne by the Lessee only.
g) The Lessee should use the premises only for office use.
h) The Lessee don’t have right to sub-lease the premises.
i) The Lessor may terminate the lease for breach of any material terms of the contract.
j) The Lessor will hold one month rent against the maintenance and printing charges from
the security deposit given by the Lessee.

3) The Lessor has also agreed to the following Lessee terms.

a) The Lessee should have unlimited access to the ‘Leased Premises’ 24 hours a day, all the
days of week.
b) The Lessor shall supply uninterruptable power supply for 100% of the load required by
the Lessee.
c) The Lessor shall provide water and sewage connection in accordance with applicable
laws.
 d) No additional charges will be paid for water and sewage facilities.
e) The Lessor should provide adequate security to the entire premises on his own cost.
f) The Lessor should give at least 3 months’ notice to to ask Lessee for a vocation of
premises.

4) The Lessor and Lessee have agreed upon the above terms and have signed the
requisite documents.

5) The lease will start from next month after Lessee pays the security deposit asked by
Lessor and has paid one month rent in advance.

Operating Lease
Operating lease refers to the type of lease where the lease term period is lesser than the
economic life of the leased asset. Under operating lease, the risks and rights regarding the
asset remain with the lessor. Hence, at the end of the lease term under operating lease
asset has a residual value. The total of the lease payments is less than the cost of the
asset.
Example:
There are some criteria of a financing lease and a lease which does not have any of those
characteristics then lease is considered as an operating lease.
Financial lease
A capital lease, also identified as a finance lease is that type of lease agreement under
which the lender, usually a financing corporation, holds the ownership of the asset. In this
type of lease, the title and all the risk and reward which is related to the lease is shifted to
the lessee. A lessor is only considered as a financier.
Example:
Any lease can be a financing lease which meets at least one following criteria:
a) Bargain purchase option
b) Life is usually 75% of the economic
c) NPV of the lease payment is at least 90% of fair value

The difference in the accounting of both type of lease

First, an entity needs to found the type of lease and then on the basis of the type accounting
is done accordingly. The major difference is the payment received from the operating lease
is reported on the P&L account and payments from the financing lease are reported on the
balance sheet.