Equipment Lease Agreement

Equipment lease agreement is an agreement between the lessor and lessee which allows the lessee to use the equipment for a defined period.

Meaning of Equipment Lease Agreement

An equipment lease agreement is an undertaking between two parties, the lessor and the lessee to use the equipment. Lessor is a party who owns the equipment and lessee is a party who uses the equipment. This is done in exchange for some consideration i.e. lease rentals. The period of usage of equipment is fixed and is termed as lease period. At the end of the lease period, the lessor may give the lessee an option to renew the lease agreement, terminate the same or an option to buy the leased equipment. This depends on the terms and conditions of lease agreement entered between both the parties.

To know about the contents of an equipment lease agreement, click here

Why Companies Opt for Equipment Leasing?

A company generally has three ways to get the equipment it needs for the business. It can purchase the equipment with cash or borrow money/take loan from the bank to purchase the equipment or to lease the equipment. Equipment leasing provides a great opportunity for a business to upgrade itself without incurring too much of upfront cost.

It is a better option than buying the equipment for various reasons.

  • It leads to tax advantages.
  • It results in saving the cost of buying an entirely new asset.
  • It provides lower monthly payments.
  • It improves the flow of working capital.
  • It provides access to latest technology at an affordable cost

Equipment Lease Agreement with an Option to Purchase

This is a contract between the lessor and the lessee, where the latter is given an option to purchase the equipment after the tenure of the lease is over. Like for example, the tenure of the lease agreement between John (equipment owner) and Smith (lessee) is for 10 years. On the expiry of the period if Smith has the option to purchase the leased equipment then such lease agreement is termed as equipment lease agreement with an option to purchase.

Long Term Equipment Lease Agreement

Long term equipment lease agreement is a long term contract which cannot be cancelled. Under this type of agreement, the lessee is required to fulfill all the obligations associated with the asset, like insurance, maintenance, etc. The lessee can avail tax benefit for the leased asset. The tenure of long term lease equipment is fixed as per the terms and conditions suitable to both the lessor and the lessee.

Conclusion

Equipment lease agreement is an essential document which clearly states the terms of the lease, parties to the agreement, rights and obligation of the parties, ownership of leased asset, liability for losses and damages, warranty and guarantee clause, who is responsible for paying the taxes and maintenance costs, etc.

So it is very importance that the parties entering into the agreement, thoroughly go through the terms and conditions mentioned in the agreement.

References:

Last updated on : August 31st, 2017
What’s your view on this? Share it in comments below.

Leave a Reply

External Source of Finance / Capital
  • LC Payment Terms
  • Characteristics and Classifications of Letter of Credit
    Characteristics and Classifications of Letter of Credit
  • Preference Shares and its Features
    Preference Shares and its Features
  • Equity Share and its Types
    Equity Share and its Types
  • Subscribe to Blog via Email

    Enter your email address to subscribe to this blog and receive notifications of new posts by email.

    Join 122 other subscribers

    Recent Posts

    Find us on Facebook


    Related pages


    how to interpret debt to equity ratiocalculate roaexample of a variable expensedebenture redemptioncredit the giverquick ratio formula financedistinguish between sale and hire purchase agreementthe accounting equation is defined ashorizontal merger meaninginternal rate of return examplessbi stock statement formexamples of capital leasesoperating lease capital leasedemerits of joint stock companyformula for receivable turnoverr&d ifrstrade payables turnover ratioirrevocable confirmed letter of creditquick acid ratio formulapayback period calculationcost of debt calculator for bondsprofitability ratio return on assetslessee and lessor definitiongoodwill is a fixed assettypes of bond covenantsdefine prepaid expensesdays accounts receivable ratiodebit credit entriesasset turnover ratio equationdivisional cost of capitalexpense meaning in hindiexplanation of npvdebtors collection period definitionquick ratio formula accountingcalculation of earning per sharefinancial management advantages and disadvantagesfixed liabilities examplesdays to collect accounts receivabledisadvantages of leasingcapitalizing software costsoverdraft definitiongdr meanscalculate payback period formulairr trial and error formulaprofitability ratios formulasleverages meaningwacc calculation exampleswhat is capital rationingasset impairment ifrsbook debts definitionshareholders funds formulapayout ratio accountingmm proposition ii with taxesdefinition of dividends per sharecross border factoringdefinition accountancymv of debtwhat are coverage ratiosmeaning of leverage in financial managementturnover of accounts receivablecreditor turnover dayswhat shortens periodsdebtors ageingsbi stock statement formnpv meaningexpenditure means in hindicalculate asset turnoverprofitability ratio meaningcapital lease and finance leaseexample of decoupling inventorynpv opportunity costadvantages and disadvantages of equity capitaltypes of bonds in financial managementsweat equity shares pptstock audit in banksliquidity ratios explained