TYPES OF LEASE AGREEMENTS
Lease agreements are basically of two types. They are (a) Financial lease and
(b)Operating lease.
(c) Sale and lease back
(d) Leveraged leasing and
(e) Direct leasing.
15.5.1 FINANCIAL LEASE
Long-term, non-cancellable lease contracts are known as financial leases. The essential point of financial lease agreement is that it contains a condition whereby the
lessor agrees to transfer the title for the asset at the end of the lease period at a
nominal cost. At lease it must give an option to the lessee to purchase the asset he has
used at the expiry of the lease. Under this lease the lessor recovers 90% of the fair
value of the asset as lease rentals and the lease period is 75% of the economic life of
the asset. The lease agreement is irrevocable. Practically all the risks incidental to the
asset ownership and all the benefits arising there from are transferred to the lessee
who bears the cost of maintenance, insurance and repairs. Only title deeds remain

with the lessor. Financial lease is also known as 'capital lease'. In India, financial
leases are very popular with high-cost and high technology equipment.
OPERATIIONAL LEASE
An operating lease stands in contrast to the financial lease in almost all aspects. This
lease agreement gives to the lessee only a limited right to use the asset. The lessor is
responsible for the upkeep and maintenance of the asset. The lessee is not given any
uplift to purchase the asset at the end of the lease period. Normally the lease is for a
short period and even otherwise is revocable at a short notice. Mines, Computer
hardware, trucks and automobiles are found suitable for operating lease because the
rate of obsolescence is very high in this kind of assets.
SALE AND LEASE BACK
It is a sub-part of finance lease. Under this, the owner of an asset sells the asset to a
party (the buyer), who in turn leases back the same asset to the owner in consideration
of lease rentals. However, under this arrangement, the assets are not physically
exchanged but it all happens in records only. This is nothing but a paper transaction.
Sale and lease back transaction is suitable for those assets, which are not subjected
depreciation but appreciation, say land. The advantage of this method is that the lessee can satisfy himself completely regarding the quality of the asset and after possession of the asset convert the sale into a lease arrangement.

TYPES OF LEASE AGREEMENTS
Lease agreements are basically of two types. They are (a) Financial lease and
(b)Operating lease.
(c) Sale and lease back
(d) Leveraged leasing and
(e) Direct leasing.
15.5.1 FINANCIAL LEASE
Long-term, non-cancellable lease contracts are known as financial leases. The essential point of financial lease agreement is that it contains a condition whereby the
lessor agrees to transfer the title for the asset at the end of the lease period at a
nominal cost. At lease it must give an option to the lessee to purchase the asset he has
used at the expiry of the lease. Under this lease the lessor recovers 90% of the fair
value of the asset as lease rentals and the lease period is 75% of the economic life of
the asset. The lease agreement is irrevocable. Practically all the risks incidental to the
asset ownership and all the benefits arising there from are transferred to the lessee
who bears the cost of maintenance, insurance and repairs. Only title deeds remain

with the lessor. Financial lease is also known as 'capital lease'. In India, financial
leases are very popular with high-cost and high technology equipment.
OPERATIIONAL LEASE
An operating lease stands in contrast to the financial lease in almost all aspects. This
lease agreement gives to the lessee only a limited right to use the asset. The lessor is
responsible for the upkeep and maintenance of the asset. The lessee is not given any
uplift to purchase the asset at the end of the lease period. Normally the lease is for a
short period and even otherwise is revocable at a short notice. Mines, Computer
hardware, trucks and automobiles are found suitable for operating lease because the
rate of obsolescence is very high in this kind of assets.
SALE AND LEASE BACK
It is a sub-part of finance lease. Under this, the owner of an asset sells the asset to a
party (the buyer), who in turn leases back the same asset to the owner in consideration
of lease rentals. However, under this arrangement, the assets are not physically
exchanged but it all happens in records only. This is nothing but a paper transaction.
Sale and lease back transaction is suitable for those assets, which are not subjected
depreciation but appreciation, say land. The advantage of this method is that the lessee can satisfy himself completely regarding the quality of the asset and after possession of the asset convert the sale into a lease arrangement.