Leasing Basics
A lease is a binding legal document which you should fully understand before signing. Here's a quick primer to get you started.
Parties to a Lease:
Lessor: The party who has legal or tax title to the equipment, and grants the right to use the equipment and receive payment for that right.
Lessee: The party who is obligated to pay rentals and is entitled to use and possess the equipment.
Lease Payment Terminology:
Frequency: Usually monthly, but also quarterly, semi-annually or annually.
Advance: Payments due at the beginning of each period.
Arrears: Payments due at end of the period.
Structured: Step up/down, skipped, seasonal, etc.
Residual Value:
Booked value of the equipment at the end of the term (balloon).
Usually $1.00 or 10% of equipment cost, or expected fair market value.
End of Term Options:
Return to lessor without further obligation.
Purchase equipment at a fixed price determined by lease agreement.
Purchase equipment at Fair Market Value (FMV) as determined by appraisal.
Renewal or extension of lease at rate determined by agreement.
