Three Types of Lease Agreements

By | October 4, 2012

Lease agreements are the rental agreements which are done between the renter and the property owner. Lease agreements may be written for a real property or for a personal property. There are mainly three types of lease agreements which are most commonly used.

1. Financial lease agreement

Financial lease agreement is long term agreement which is a non-breakable lease. The main point under this contract is the ownership may be transferred to the renter at the end of the lease term at nominal cost. It should give a chance to the lessee or the renter to purchase the property which he/she used at the time of the lease expiry. So by this lease the owner may recover almost 90% of the property value in the form of rent for a lease period of 75%.

This financial lease agreement is unchangeable. The risks and the benefits are transferred to the renter who is responsible for the cost maintenance, damages and protection. This is also called as capital lease. Capital leases are very well known with advanced equipment and high expenditure.

Selling and lease back

This is a part of financial lease agreement. In this type the lessor of the property sells the property to a buyer, who leases back the same property to the lessor. This method is recorded in the form of a paper transaction. This is mainly suitable for the properties which are subjected to the appreciation. Here the renter would be satisfied in respect to the property.

2. Operational lease agreement

Operational lease agreement is a short term agreement which is quite opposite to that of financial lease agreement nearly in all the features. This operational lease contract provides the renter or the lessee only with minimum rights to use the property. In this agreement the owner is responsible for the maintenance of the costs, repairs, damages and protection. Here the renter is not given any chance of purchasing the property at the time of lease expiry. This agreement is changeable at a short period. The properties like vehicles, mines etc. are suitable for this kind of agreement as their rate of degeneracy is high.

3. Leveraged leasing agreement

Leveraged leasing agreement is a contract in which third party is considered including the owner and renter. In this the third party lends a portion of purchase cost of the property to the owner. That is the third party and the purchased property is like a safety against the loan. The rent is diverted to the third party. After lender attains his claims, the rent is diverted to the owner.


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