Advantages of Leasing

• Leasing property can offer important advantages over purchasing. It conserves the lessee's capital since the lessor in effect is financing 100 percent of the deal. Leasing can avoid the risk of obsolescence if structured so the lessee can simply return the property to the lessor at the end of the lease. Leases generally are easier to obtain than bank-loan financing and normally don't involve the kind of use restrictions that a lender may impose to protect its financial interest in the property. There are different types of lease arrangements, each tailored to different situations.
  
  

Operating Lease

• This is the type of lease used for real estate and equipment such as automobiles. Under this arrangement, the lessor gives the lessee exclusive use of the property for a specific term in return for rent or periodic payments but retains ownership. At the end of the lease term, the lessee returns the property to the lessor and walks away.
  
  

Additional Conditions

• The lessor in an operating lease may demand a down payment plus a security deposit to compensate for excessive wear and tear on the property. If there's excessive wear on the property, the lessee forfeits his security deposit and may be subject to additional charges. The lessor also can offer the lessee the option of buying the property at the end of the lease term by paying the residual market value.
  
  

Capital Lease

• This type of lease is used for business equipment and in lease-to-own arrangements. It is similar to an installment purchase except that the lessor retains ownership of the property during the lease term. The lessee enjoys economic benefits of ownership such as depreciation but also assumes all risks of loss or damage. The lessor gains advantage by being able to account for a capital lease as the equivalent of a sale. At the end of the lease term, title to the property automatically passes to the lessee. Alternatively, a capital lease can be structured so the lessee takes ownership of the asset for a final balloon payment that's less than fair market value.
  
  

Sale and Leaseback

• In this arrangement, an owner sells his property to a leasing company but then immediately leases back the property to retain exclusive use. This arrangement frees up for other purposes the capital that would be tied up in the property. The drawback is that the original owner loses the depreciation and other economic advantages of ownership