Lease Financing Glossary
Direct lease. You identify the asset (and negotiate
the price) and arrange for the leasing company to buy it
from the manufacturer (if new) or the previous owner (if
used) to rent it to you. (see also sale-and-leaseback)
Economic life (useful life). The period of time
during which an asset has economic value and is usuable.
Fair Market Value. Price at which an asset is sold
and bought in the open market.
Lease. A lease is a contract in which the lessor
purchases the asset selected by you and conveys the use
of an asset to you for a specific period of time at a predetermined
rate.
Lease Rate. The periodic rental payment to the lessor
for the use of the asset. The lease rate is primarily determined
by the total cost of the asset, the duration of the lease
and the interest rate level.
Lessee. The lessee is the user of the asset being
leased, i.e. you.
Lessor. The lessor is the party who has legal or
tax title to the equipment, grants the lessee the right
to use the equipment for the lease term, and is entitled
to the rentals, i.e. the leasing company.
Master lease. A contractual arrangement which allows
you to lease other assets under the same basic terms and
conditions without negotiating a new contract.
Purchase option. A provision by which you have the
right to purchase the asset at the end of the lease term,
either at a predetermined amount or its fair market value.
Residual value. The resale value of the asset at
the end of the lease.
Sale-and-leaseback (also called purchase leaseback).
You sell an asset you already own to the leasing company
for fair market value or book written down value (whichever
is less) and then lease it back (see also direct lease).
