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Lease Financing

In the recent years, the lease financing has emerged as one of the most important sources of long term financing. Under the leasing agreements, the company acquires the rights to use the asset without holding the title to it. Thus, it is the written agreement between the owner of the assets, called the “lessor”, and the user of the assets, called “the lessee”, whereby the lessor permits the lessee to economically use the asset for a specified period of time but the title of the asset is retained by the lessor. The economical use of the asset is permitted by the lessor on the payment of periodical amount which is in the form of “lease rent”.

Lease agreement or lease deed:

Lease agreement/deed is the most important document in nay leasing activity as it starts the legal relationship between the lessor and lessee.

The usual contents of the lease agreement/deed are as stated below:
1.    Description and cost of equipment to be acquired.

2.    Commencement date for lease contract.

3.    Amount of lease rentals and mode of payments.

4.    Fixed period of lease, renewal options and the terms during secondary period as to the 
       amount of lease rentals or purchase option.

5.    Guarantee for repayment of lease rental by lessee.

6.    Variation of lease rentals.

7.    Termination of the lease agreement in the event of certain occurrences.

8.    In order to protect the interests of the lessor and lessee, certain covenants as stated below
       may also be incorporated as a part of lease deed.
i.    That lessee will maintain the asset in good working condition and pay all taxes, insurance etc.
ii.    That lessee will not sell or mortgage or charge the land or building on which equipment is
       installed without notifying to lessor.
iii.    That lessee will not claim any grant or relief available to the lessor.
iv.    That lessee will not alter or modify equipment without lessor’s knowledge.
v.    That lessee will accept the lessor’s right to inspect the equipment.

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