1. By: Nazir Fahim & Team

2.  A lease transaction is a commercial arrangement
whereby an equipment owner or Manufacturer conveys
to the equipment user the right to use the equipment in
return for a rental.
 Lease is a contract between the owner of an asset (the
lessor) and its user (the lessee) for the right to use the
asset during a specified period in return for a mutually
agreed periodic payment (the lease rentals).

3.  •Parties to the contract
 •Asset
 •Ownership separated from user
 •Term of lease
 •Lease Rentals

4.  The lease is renewed on a perpetual basis or for a
definite period.
 The asset reverts to the lessor.
 The assets reverts to the lessor and the lessor sells it to
a third party.
 The lessor sells the asset to the lessee.

5.  The lessee chooses the equipment and the
equipment supplier.
 The supplier provides a quotation to lessee.
 The lessee submits an application to the lessor.
 The lessor and lessee sign a lease contract.
 The supplier delivers the equipment to the lessee.
 The lessor registers and insures the equipment.

6. Lease agreements are basically of two types.
 Financial lease
 Operating lease
The other variations in lease agreements are
 Sale and lease back
 Leveraged leasing
 Direct leasing

7.  Long-term, non-cancellable lease contracts are known
as financial leases.
 The lease agreement is irrevocable.
 The essential point of financial lease agreement is that
it contains a condition whereby the lessor agrees to
transfer the ownership of the asset at the end of the
lease period at a nominal cost.
 At lease, it must give an option to the lessee to
purchase the asset he has used at the expiry of the lease
or return it.

8.  An operating lease stands in contrast to the financial
lease in almost all aspects.
 This lease agreement gives to the lessee only a limited
right to use the asset.
 The lessor is responsible for the upkeep and
maintenance of the asset.
 The lessee is not given any uplift to purchase the asset
at the end of the lease period.
 The primary lease period does not cover the cost of the
asset.

9.  Here, the owner of an asset sells the asset to
a party (the buyer), who in turn leases back
the same asset to the owner in consideration
of lease rentals.
 However, under this arrangement, the assets
are not physically exchanged but it all
happens in records only.
 This is nothing but a paper transaction.

10.  Under leveraged leasing arrangement, a third party is
involved beside lessor and lessee.
 The lessor borrows a part of the purchase cost (say
80%) of the asset from the third party i.e., lender and
the asset so purchased is held as security against the
loan.
 The lender is paid off from the lease rentals directly by
the lessee and the surplus after meeting the claims of
the lender goes to the lessor.

11.  Under direct leasing, a firm acquires the right to use an
asset from the manufacturer directly.
 The ownership of the asset leased out remains with the
manufacturer itself.
 The major types of direct lessor include manufacturers,
finance companies, independent lease companies,
special purpose leasing companies etc

12. Provisions under Contract Act relating to lease:
 two parties - lessor , lessee.
 Transfer of possession of goods from (lessor)
to (lessee), for a specific purpose.
 As under lease, on accomplishment of
purpose the goods transferred from lessee to
lessor.

13.  Pay the lease rentals periodically.
 Take reasonable care of the asset If he fails he is liable to for loss or
damage.
 Use the asset carefully.
 Report the issues regarding the asset to lessor.
 If goods damaged despite of reasonable care, (floods, riots etc), then
the lessee is not responsible.
 The lessee is not allowed to use the leased asset , for any purpose
other than one specified in the lease agreement.
 If he does so , then the lease agreement is terminated, and lessor
recovers the possession of the goods.
 Return the leased asset.

14.  Deliver the asset to the lessee.
 Authorize the lessee to use the asset.
 Leave the asset in peaceful possession.
 Periodically service as per contract.
 Do all the clearance of the asset as per contract.
 all known defects to be disclosed. If not then the lessor has to
compensate the losses incurred by the lessee due to such
defects.
 forfeiture of all lease rentals paid up to the date of termination,
even if it exceeds the amt. of benefit received by the lessee.

15.  Lessor:
 The depreciation can be claimed by the lessor and not
the lessee.
 Depreciation can be charged as a tax deductible
expense item by lessor.
 The lease rentals received by lessor are taxable as
profit & gain from business
 Lessee:
 The lease rentals and Insurance, repairs, maintenance
charges paid by lessee are tax deductible items of
expenses for the lessee

17. Thank You