What are the types of lease?

Types of leases are discussed below

  • Financial Lease

This type of lease which is for a long period provides for the use of asset during the primary lease period which devotes almost the entire life of the asset. The lessor assumes the role of a financier and hence services of repairs, maintenance etc., are not provided by him. The legal title is retained by the lessor who has no option to terminate the lease agreement.

  • Operating Lease

It is where the asset is not wholly amortized during the non-cancelled period if any, of the lease and where the lessor does not rely on is profit on the rentals in the non-cancelled period. In this type of lease, the lessor who bears the cost of insurance, machinery, maintenance, repair costs, etc. is unable to realize the full cost of equipment and other incidental charges during the initial period of the lease.

  • Sale and Lease Back Leasing

To raise funds a company may-sell an asset which belongs to the lessor with whom the ownership vests from there on. Subsequently, the lessor leases the same asset to the company (the lessee) who uses it. The asset thus remains with the lessee with the change in title to the lessor thus enabling the company to procure the much-needed finance. Under this arrangement, the lessor agrees with the manufacturer to market his product through his leasing operations, in return for which the manufacturer agrees to pay him a commission.

  • Specialized Service Lease

In this type of agreement, the lessor provides specialized personal services in addition to providing its use.

  • Small Ticket and Big Ticket Leases

The lease of assets in smaller value is generally called as small-ticket leases and larger value assets are called big-ticket leases.

  • Cross Border Lease

Lease across the national frontiers is called cross broker leasing. The recent development in economic liberalization, the cross border leasing is gaining greater importance in areas like aviation, shipping and other costly assets which base likely to become absolute due to technological changes.