Meaning and definition of a Lease
To give the legal definition of a lease, it can be rightly stated that it is a written agreement wherein the owner of a property allows a tenant to use his property for a specific time period with a certain amount of rent.
Types of Lease
There are various lease types and each one of them featuring variable conditions subject to laws governing each state. The main lease types are as follows:
- Finance Lease
Also referred as a financial sale, this lease allows for the advantages of flexibility because payments are distributed to a period of many years, generally equivalent to the actual cost of property or equipment. However, this lease type is not suitable for individuals who want to acquire rapid tax benefits.
- True Lease
Also referred as a tax lease, this is a better for those seeking for rapid tax benefits. Besides, it is also beneficial to professional institutions, since the lessor still remains the owner of the equipment. Moreover, you also get the advantage of lower monthly payments as contrasted to those of financial lease. Moreover, these payments, in some cases, might also be tax-deductible.
- Operating Lease
Also referred as a tax lease, this lease type is also helpful in obtaining rapid tax benefits. Generally, this is considered as a short-term lease, usually three years or lesser. Also, it is often related to high-tech equipment, or property that is at a risk of becoming technologically obsolete. This lease type involves the lessor taking more of risk in ownership, thus allowing for much lower monthly payments for the lessee. Besides, when it comes to taxes, this lease is considered as neither an asset nor a liability.
- Skip Lease
This is another flexible lease type that involves the lessee and the lessor to agree upon a payment schedule where a set time period, say some months, do not have any payment or penalty. This lease type is archetypal for business institutions and organizations whose operations depend on a seasonal schedule. This is most commonly found in school systems, and the recreational and agricultural industries.