Types of Leases - Essay Example

The paper "Types of Leases" is an excellent example of an essay on business. Leasing, otherwise known as asset financing, refers to a mode of purchasing assets such as machinery, equipment, and business plans among others. However, leasing does not conform to the normal way of purchasing assets where one pays the full amount upfront before the transfer of ownership. The person taking a lease is the lessee, and the lessor is the person availing it. Leasing begins by striking an agreement between the two involved parties after stating the terms and conditions to follow. The differences in the agreement terms lead to the formation of different leases based on different factors such as duration (Monahan, 2012). 

Based on the duration factor, there are different types of leases. One of the leases within this category is the hire a purchase mode of acquiring an asset. Within this category, a lessee gets to pay for the full amount of the asset within the duration specified in the lease agreement. The agreement is law binding and the lessee and lessor must keep to the duration specified. The lessee will only get the opportunity to own the asset once the period elapses. On the other hand, the lessor will allow the payments to run until the end of the defined period. In higher purchase, the lessee pays up an amount specified in the agreement in installments. However, of late hire purchase is not as common as a while ago; but, for example, people do purchase things like television sets, which they own after completing the payment.
Contract agreement forms yet another lease affected by duration. In this lease, the contract gives one the authority to own and use an asset for a period specified within the lease agreement. The lease contract also includes a maintenance agreement, which elaborates on the terms of maintaining the asset whilst it is under the use of the lessee. It is crucial to understand that the ownership of the asset remains in the financing company or the lessor, even after the contract expires (Startups, N.D.). However, if the lessee wants to remain with the asset, the lessor can provide the amount the lessee needs to pay up for ownership transfer to take place. Leasing out a car under contract agreement is possible and the lessor can link the maintenance fee to the original agreement. Moreover, if the lessee feels that he is capable of remaining with the car, he can pay up residual fee as stated by the lessor in the contract and own the car.
Basing still on duration, finance lease forms another other forms of lease dependent on the duration factor. Finance lease bears many similarities with hire purchase, but there is a significant difference. Such that, within hire purchase, the lessee gets to keep the asset after the contract period elapses. However, in finance leasing, the lessee pays up an amount worth the asset, in addition to the expected interest. On termination of the contract period, the lessee may choose to return the asset or keep it, subsequently entering into a secondary agreement. The secondary agreement entails payment of a nominal fee for the asset. An example of such a lease is the hire of industrial equipment, which one may need to continue using even after the end of the original contract for the sake of meeting the industry’s product supplies (Startups, N.D.). Read More