Types of lease agreement

in Lease

A document created between two parties for the purpose of renting out the property on lease is called lease agreement. The lease can be made on any property like rental or commercial. Basically there are 5 major types of leases.

Operating lease: It is also known as service lease which is made between the owner of the property and the tenant. The document or contract is made between two parties for renting the asset or property. In this type of lease, the tenant or the borrower uses the asset for particular period. It is the responsibility of the owner to carry on all repairing works or maintenance during that period.

Capital lease: This type of lease agreement is commonly called as finance lease and in this type the borrower holds the full control or authority over the leased property or asset. In other words the tenant or the borrower takes full responsibility for any maintenance and other costs of repairing works during that period. The tenant has the full control of the property and hence is affected by the benefits and detriments of any kind.

Leaseback arrangement: In this type the buyer purchases the asset from the owner and immediately leases it to the third party for fixed period. The sale of the property is made to the buyer and the seller can be anyone like an investor, a bank, a company or a leasing company.

Combination type: This type of lease combines both the capital lease and operating leases.

Synthetic lease: It is one form of operating lease wherein the liability of the company is not shown on record. Instead it shows it as an expense in the income side. The borrower can be freed from the tax burden by this method. Of all the types, this synthetic lease agreement is most advantageous and preferred by many borrowers.

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Lorraine Hock has 41 articles online and 2 fans

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Types of lease agreement

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This article was published on 2011/04/11