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“Why own a cow when the milk is so cheap?

All you really need is milk and not the cow.” Donald B. Grant
Presented by: Rahul Patel Vivek Tripathi & Yash Deep Srivastava

Introduction Importance Features Advantages of Commercial Lease Leasing in India Leasing Internationally Lessors & Lessees Types of Lease Benefits

 In India, the concept was pioneered in 1973 when the First Leasing Company was set up in Madras and the eighties have seen a rapid growth of this business.  Leasing is a process by which a firm can obtain the use of a certain fixed assets for which it must pay a series of contractual, periodic, tax deductible payments.  Lease as a concept involves a contract whereby the ownership, financing and risk taking of any equipment or asset are separated and shared by two or more parties.

A lease transaction is a commercial arrangement whereby an equipment owner or Manufacturer conveys to the equipment user the right to use the equipment in return for a rental. In other words, lease is a contract between the owner of an asset (the lessor) and its user (the lessee) for the right to use the asset during a specified period in return for a mutually agreed periodic payment (the lease rentals).

which have high technological obsolescence.Providing money incentives to lessee. The lessee can also pass on the risk of obsolescence to the lessor by acquiring those 229 appliances. . The lessee does not have to pay the cost of asset at the time of signing the contract of leases. Leasing contracts are more flexible so lessees can structure the leasing contracts according to their needs for finance.

The important feature of a lease contract is separation of the ownership of the asset from its usage. .

. and no notice needs to be given. in the absence of legal requirements.Formality of a lease: -A tenancy for years greater than 1 year must be in writing in order to satisfy the Statute of Frauds. Term of a lease: -The term of the lease may be fixed. periodic or of indefinite duration. If it is for a specified period of time. the term ends automatically when the period expires.

A fixed-term agreement  For a specified period of time (the "term"). last until some specified event occurs.e. i. last only as long as the parties wish it to. such as the death of a specified individual. and end when the term expires.e. and be terminated without penalty by either party. A periodic agreement  Usually on a monthly or weekly basis  At will. i. .  Conditional.

Rent: -Rent is a requirement of leases in common law jurisdiction. "Pepper corn" rent or rent of some nominal amount is adequate for this requirement. There is no requirement for the rent to be a commercial amount. but not in civil law jurisdiction. .

confer exclusive possession . A definite term (whether fixed or periodic) 2. At a rent 3.1.

and the other person is called the lessee or tenant. . subject to the laws. codes. the owner is called the lessor or landlord. permit another to have possession and control of the property through a lease or tenancy agreement. can sell or by contract or grant. and the rights to possess and control the land are exchanged for some payment (called consideration in legal English). An owner of the fee simple holds all the rights and privileges to that property and. For this purpose. rules and regulations of the local law. usually a monthly rent.

or it can be a transaction intended to allow the user the right to buy the item at some future time. a truck or an airliner) or a computer either for a fixed period of time or at will. . This can be a simple leasing transaction.An owner can allow another the use of a vehicle (such as vehicle leasing of a car.

In those countries where acquiring title is complicated. and finance is difficult to obtain. freely available credit at low interest rates with minimal tax disadvantages and low transaction costs will encourage land ownership. . the state imposes high taxes on owners. transaction costs are high.Whether it is better to lease or buy land will be determined by each state's legal and economic systems. But. leasing will be the norm.

 Rental.The tenant's right to occupy the accommodation for an agreed term and the landlord’s right to receive an agreed rent. If one of these elements is missing. tenancy. . only a tenancy at will or bare license comes into being.  Example: . and lease agreements are formal and informal contracts between an identified landlord and tenant giving rights to both parties.

and/or what was agreed orally (if there is clear evidence of what was said).These include what is in the written agreement (if there is one).These are the standard terms established by custom and practice or the minimum rights and duties formally implied by law. in the rent book.Express terms: . Implied terms: . .

like a shopping center. Warehouse. . and a catch-all hybrid often referred to as "Mixed Use". taking on some characteristics of Retail leasing when associated with a retail project. commercial real property leases fall into one of just a few categories:Office. among other things. Ground. In the modern legal framework. Retail. although Ground leases may differ somewhat.  Each has certain typical characteristics. and although Mixed Use projects can vary greatly depending upon the various inclusions and the size of the overall project.

Leasing shifts risks to the lessor. .1. 2. Leasing is less capital-intensive than purchasing. a business that depends on leased property is sacrificing capital gains. it can grow more rapidly by leasing property than it could by purchasing the property outright. but if the property market has shown steady growth over time. so if a business has constraints on its capital. Capital assets may fluctuate in value.

In some cases a lease may be the only practical option. such as for a small business that wishes to locate in a large office building within tight locational parameters. because a lessee is not usually obliged to renew a lease at the end of its term. Furthermore. Because of investments which are done with leasing. 4. .3. new businesses are formed. Leasing may provide more flexibility to a business which expects to grow or move in the relatively short term. 5. unemployment in that country is decreased.

6. Lease payments are considered expenses. which can be set off against revenue when calculating taxable profit at the end of the relevant tax accounting period. Depreciation of capital assets has different tax and financial reporting treatment from ordinary business expenses. .

. it may be expensive or otherwise difficult to terminate a lease before the end of the term. If circumstances dictate that a business must change its operations significantly.A net lease may shift some or all of the maintenance costs onto the tenant.

.Leasing has grown by leaps and bounds in the eighties but it is estimated that hardly 1% of the industrial investment in India is covered by the lease finance. The prospects of leasing in India are good due to growing investment needs and scarcity of funds with public financial institutions. as against 40% in USA and 30% in UK and 10% in Japan.

while equipment leasing has become very common in the recent times.  Leasing in the sphere of land and building has been in existence in India for a long time. .This type of lease finances is particularly suitable in India where a large number of small companies have emerged more recently.

The practice of leasing is well established in most countries of the world . These largely divide into countries observing:  Legal Form: the lessors legal ownership of the property. The benefits to the lessee and lessor will vary widely depending on national accounting standards and tax regulations. or  Substance: the lessee legal right to use the property. .

whose term is short compared to the useful life of the asset.as the lessor has less of the risks of ownership.National accounting standards vary in the tests that decide if the lease is a: Capital or Finance Lease. such as the value of the equipment in future years.  Operating Lease. which is considered a financing transaction . . where the lessee does not have to show the lease on their balance sheet.

Specialized leasing companies Banks and bank-subsidiaries Specialized Financial institutions One-off lessors Manufacturer-lessors .

Corporate customers with very high credit ratings Public sector undertaking Mid-market companies Consumers .

Government departments and authorities Commercial vehicles Earth-moving machinery customers Car customers .

While many leasing companies may use the same name to describe a lease. . the actual terms and conditions written in their contracts often vary.

the leasing company retains ownership of the equipment during the lease. Mines. Computers hardware. True or operating leases typically have no predetermined buyouts .  Best For: Equipment that will rapidly depreciate or become obsolete in a short period of time .e. . trucks and automobiles  How It Works: In a true or operating lease.  The lessor is responsible for the upkeep and maintenance of the asset.i.customers usually classify these payments as an operating expense. This lease agreement gives to the lessee only a limited right to use the asset.

 Return the equipment to the leasing company. .  Purchase the equipment at its fair market value or option amount  Extend your lease term.Lower payments and typically the most taxfriendly form of leasing. Additionally true or operating leases offer three choices at the end of your lease.

Long-term. At lease it must give an option to the lessee to purchase the asset he has used at the expiry of the lease. It contains a condition whereby the lessor agrees to transfer the title for the asset at the end of the lease period at a nominal cost. non-cancellable lease contracts are known as financial leases. .

All the risks incidental to the asset ownership and all the benefits arising there from are transferred to the lessee. insurance and repairs.Under this lease the lessor recovers 90% of the fair value of the asset as lease rentals and the lease period is 75% of the economic life of the asset. . Only title deeds remain with the lessor. who bears the cost of maintenance.

earn interest. is spread over the length of the lease agreement. usually a small percentage of the original purchase price. you own the equipment for a minimal payment.Best For: If you would prefer to own the equipment when the lease agreement ends. Benefits: At the end of the lease. and make some profit on the project. How It Works: The full purchase price. . plus interest. The lessor receives an amount sufficient to amortise his capital outlay on the asset.

which are not subjected depreciation but appreciation. Under this arrangement. the assets are not physically exchanged but it all happens in records only. Under this. who in turn leases back the same asset to the owner in consideration of lease rentals. It is suitable for those assets. say land. .It is a sub-part of finance lease. the owner of an asset sells the asset to a party (the buyer).

Customers who have purchased their equipment.Best for: . but now have decided that leasing would be more beneficial. Access Equipment Leasing requires that the equipment be purchased within 90 days. Sale-leaseback also allows companies to raise cash for other investments or cash flow purposes. which then takes ownership of the equipment and leases it back to the business. . How It Works: The business that has already purchased equipment sells it to a leasing company.

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The lessee can satisfy himself completely regarding the quality of the asset and after possession of the asset convert the sale into a lease arrangement. . The sale-leaseback allows you to put money back into your business or into investments that appreciate rather than depreciate.

With this form of lease.  How It Works: A 60 or 90-day deferred lease can be structured as a finance lease or a true lease.  Best For: Businesses that need equipment for operation and development that will not immediately generate revenue. there is usually no advance payment required. . and the first payment is not due for 60 or 90 days after the lease begins. A third party is involved beside lessor and lessee.

The lessor. . The lender is paid off from the lease rentals directly by the lessee and the surplus after meeting the claims of the lender goes to the lessor.. the owner of the asset is entitled to depreciation allowance associated with the asset.The lessor borrows a part of the purchase cost (say 80%) of the asset from the third party i. lender and the asset so purchased is held as security against the loan.e.

 The equipment you need can be acquired with little to no money up front and no payments for 2-3 months. .

The lessee bears the maintenance and insurance costs. Wet Lease: .This distinction is made on the basis of the maintenance aspect. . Dry Lease: .If the maintenance and insurance costs are born by the lessor.

The ownership of the asset leased out remains with the manufacturer itself. independent lease companies. special purpose leasing companies etc . a firm acquires the right to use an asset from the manufacturer directly. The major types of direct lessor include manufacturers. finance companies.Under direct leasing.

recreational services firms. and other organizations which might require a more flexible payment schedule due to seasonal business conditions.Best For: Seasonal businesses. in that it can be adjusted to irregular cash flow. How It Works: Lessee can specify months when he would prefer not to make payments. Benefits: Flexible. agricultural companies. .

. Benefits: Acquiring additional equipment is made more convenient. The master lease governs the basic terms and conditions. How It Works: Separate lease schedules are created to accommodate the addition of equipment over a period of time of your specification.Best For: If your leasing requirements will likely be expanding over time.

How It Works: The tax structures and details of municipal leases will vary considerably from standard business leases. . Seek the advice of your financial advisor to better understand your municipal lease options.Best For: Local and state government organizations that wish to acquire equipment. Benefits: Municipal leases are designed specifically for local and state government organizations.

How It Works: Payments increase according to a regular schedule over the life of the lease. Benefits: Payments can be structured to match current cash flow .Best For: Businesses whose financed equipment will allow more profitability over a period of time.

Buy or Lease Evaluation of Lease Case Study .

Thank You ! .