It is a misconception to think there are only three types of leases:
- Return the equipment (in working and satisfactory order at your expense)
- $1.00 (Dollar out ;) a capital lease/finance
- 10% residual (10% of the cost to lessor, not just the equipment,
meaning often labor, delivery, and sales tax is included)
Depending on the equipment, most often still a capital lease.
- 10% guaranteed, often called a P.U.T. Purchase upon terms.
The lessee must pay 10%, generally if the lessor so requires,
is the most often term utilized. Still considered a "capital lease."
- Fair Market Value---This is often not spelled out regarding
the evaluation of FMV; perhaps the dispute resolution in the
contract may be the legal resolution procedure. On the street,
it generally means the difference between the wholesale price
and the retail price, used often in vehicle FMV determination.
Often three dealer wholesale and retail are average to
There are sub-definitions that may fit this:
A lease that contains a special provision called a "terminal rental adjustment clause. The transaction looks and works like a balloon loan because the lessor transfers all residual value risk to the lessee.
Most commonly used in the vehicle leasing FMV's, particularly if fits a "blue book" end valuation.
Often considered an opened ended lease, although there are those who on certain equipment define it as requiring an extra 12 or specified payments and then abandon the equipment.
c. This is an in-between lease, often called a Synthetic Lease
A financing agreement structured to be treated as a lease for accounting purposes, but as a loan for tax purposes.
In addition to these residual definitions, there are other types of leases.
* Master Lease---Increments until all equipment delivered.
**Deposit Lease---Deposit to seller of equipment, interest only until equipment delivered and accepted.
* One hour driving time from our office, minimum $20,000 total lease
The Master Lease pays for equipment on a schedule of delivery of equipment, with the lessee paying "interest" interim rent until all the equipment is delivered and accepted, then the lease will start.
The Deposit Lease gives the seller a 25% or 50% or even 75% up-front deposit on the order. The lessee pays interim "interest" rent until all the equipment is delivered and accepted, then the lease will start.