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Finance leases

M

MindFull

Ton up Member
I have been hard at work reseaching finance leases and hire purchase agreements... I saw a multiple-choice ques. that stated that the ownership of the asset never goes to the lessee...but I have read elsewhere that since basically all the risks are put on the lessee, then the asset is the property of the lessee. What's the true answer to this ques?

Thanks.
 
With a lease, the lessor owns the asset and the lessee has use of the asset in return for a rental payment. Because the lessee doesn't own the asset they will have obligations to look after the asset and hence some risk. The lessor will also have some risk (eg the value of the asset at the end of the term). The precise risks will depend on the terms of the lease.
 
As a further bit of detail - Leasing can be Operational or Financial. Operational Leasing is for a period much shorter than the expected life of the asset, and the owner retains most of the risk ie. maintanence costs and loss in value etc. Financial Leasing is for period similar to life of the asset, so the leasee takes on most of the associated risks (but does not own it!). Operational Leasing could be used for hiring a van to make some deliveries, if these are not needed too often it may not be worth buying a van and it losing value and having to maintain it. An advantage of Financial Leasing is that you dont have a large outlay of capital to buy the asset and can be returned to owner if it can no longer be afforded or a different asset is later required eg. a newer van or computer
 
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