How Leasing Works

A Lease is a rental agreement for a specific term that is generally non-cancelable. Leasing activities are generally divided both in format and organizational structure into commercial leasing and consumer lending.
Today we are going to write about commercial leasing only. Consumer leasing is a highly regulated business, requiring federally mandated disclosures, and providing for penalties for non-compliance that can be as onerous as those imposed for violations of consumer lending laws. One of the major advantages of commercial equipment leasing is that it is essentially an unregulated industry. While there are statutes and case law concerning commercial leasing, there is no regulator who regulates this industry and no license is required. This is only true as long as the lease can be accurately characterized as a "True Lease".
A true lease I an alternative to buying a product for cash or borrowing to obtain it. It is a means by which a business of person obtains operating privileges and responsibilities associated with ownership of an asset, without assuming the ownership risks or rewards of deprecation or appreciation in the market value of the asset.
To be considered a true lease, the documentation must provide for the use of the product of goods for a specific length of time at a specific cost. The lessor assumes all ownership risks. If the transaction includes an option for the proposed lessee to obtain or assume ownership for abdominal price during the term of the lease or at the termination of the lease, it is not a true lease. IT is a "financing" and is subject to all the rules, regulations, licensing, and usury penalties that the state or federal jurisdiction can impose. Regardless of any special negotiations regarding tax credits of other benefits, a true lease always has the characteristic that it will not allow transfer of tile at any time. An option to buy is frequently a part of lease transaction. However, the option is exercisable after the lease has been satisfied, must be for the fair market value of the equipment, and must be, in fact, an option exercised at the discretion of the lessee and not a "put" requiring purchase.