Leases And Lease Types

lessee

The user of an asset in a leasing agreement. The lessee makes payments to the lessor.

lessor

The owner of an asset in a leasing agreement. The lessor receives payments from the lessee.

A lease is a contractual agreement between two parties: the lessee and the lessor. The lessee is the user of the equipment; the lessor is the owner. Thus, in the China Airlines example we used to open the chapter, China Airlines is the lessee; GE Capital Aviation is the lessor.

Typically, a company first decides on the asset that it needs. It then negotiates a lease contract with a lessor for use of that asset. The lease agreement establishes that the lessee has the right to use the asset and, in return, must make periodic payments to the lessor, the owner of the asset. The lessor is usually either the asset's manufacturer or an independent leasing company. If the lessor is an independent leasing company, it must buy the asset from a manufacturer. The lessor then delivers the asset to the lessee, and the lease goes into effect.

There are some giant lessors in the United States. For example, General Electric Capital and IBM Global Financing each lease billions in equipment annually. Other major lessors include CitiCapital, International Lease Finance, and Fleet Capital.

Should you lease or buy that next car? Visit the Money section of www.bloomberg.com for a calculator to help you decide.

0 0

Post a comment