Leasing

Leasing [li ː sɪŋ ] (of English. To lease = " rentable " ) is in the civil law sense, a transfer of use agreement or an atypical contract. The term has been in the public communication but mostly a wider meaning as a financing alternative, in which the leased asset is purchased and financed by the lessor and the lessee will be left upon payment of an agreed lease fee for use. A common definition of leasing there are neither in the economic life nor in literature.

  • 3.1 Basic Types
  • 3.2 Variants
  • 4.1 Tax deferred 4.1.1 Germany
  • 4.1.2 Switzerland
  • 4.1.3 Austria
  • 4.2.1 U.S. GAAP
  • 4.2.2 IFRS
  • 5.1 Organization and Functioning of 5.1.1 holding company and a bunk model
  • 5.1.2 refinancing
  • 8.1 advantages
  • 8.2 disadvantages
  • 8.3 alternatives

Conceptual delimitation

Leases have a character similar leases. From the rental, leasing is distinguished by the fact that the tenancy agreement owed ​​maintenance and repair service or the warranty claim will be circulated to the lessee.

This is done in exchange for the assignment of the purchase rights on the part of the lessor and the finance function in the lease. The lessee bears this property, and price risk. Leasing contracts are thus "atypical" leases.

As lessor occur both independent leasing companies, as well as with the interests of a bank or manufacturer related leasing companies. Leases can be associated with additional agreements, such as the takeover of the maintenance of the provided object by the lessor against a monthly flat fee. Since late 2008, a finance lease is in Germany requires a permit financial service within the meaning of the German Banking Act ( KWG).

Leasing is popular because the psychological barrier to entering into a contract is lower than the position of a credit application at a bank. Tax and accounting benefits come into play depending on the circumstances.

The legal ownership and the beneficial ownership may fall apart in leasing transactions. A particular difficulty is that national tax regulations and international accounting standards such as U.S. GAAP and IFRS meet the economic allocation of the leased property to the lessor or the lessee different. In German-speaking countries use a transfer agreement is understood to lease usually where the lessor economic owner of the leased property remains. Other constellations are known as hire purchase. In international usage, is independent of the question of to whom the ownership is assigned to the object, the name lease with distinctions, for example, in operating leases and capital leases usual.

Leasing business

Typical sequence

With leasing of movable assets usually a leasing company ordered a desired object or by the lessee enters an already concluded contract of sale. The lessee determines make, special equipment options and the suppliers, and generally has also negotiated the price with the supplier. The cost of procurement and financing of the object by the leasing company are to be financed by a contemporaneous transfer of use agreement for the object with the lessee with guaranteed minimum revenues during the term of the whole or a substantial part thereof. For the adoption of a lease application by a leasing company, the creditworthiness of the applicant and the assessment of the object are mainly critical. Objects that are used hard to sell, were too expensive purchased by the contractor or that are technologically obsolete or obsolescence is imminent, provide an insufficient security for the lessor dar. collateral, such as prepaid rent, security deposits or deposit payments can contribute to reducing the risk of the lessor to the final condition be made.

About buying and leasing is often negotiated in parallel when a prospective customer without fixed financing may enter into any contract of sale. Agreements between supplier and leasing company, of which the party has no knowledge, are common. Thus, the supplier of the leasing company can offer a cheaper purchase price for allowing a low-cost funding or commitments for recovery of the object when the contract expires. If the supplier has made ​​contact with the leasing company, he gets the other usually a commission.

The lessee pays lease payments. Costs for the consumption of the property during the lease term, to cover its financing as well as a premium for administrative costs and profits of the lessor Arrangements for Additional services by the lessor, such as insurance or maintenance of the property of the object are lump sum in the service leasing contracts settled through bonuses.

After the end of the lease, and on the assumption that the lessee a possible purchase or renewal option is not exercised, the lessor may dispose of the property leased again. Sale to the lessee or a third party, subleases to the lessee or a third party, storage and scrapping are possible recovery options. Often, the original supplier of the object is involved. How car dealers take often on behalf of the leasing company status and other data necessary for the final bill upon return of the vehicle on and take care of the sale on the used car market.

At leases the lessee and the supplier of the leased property other parties may be involved in addition to the lessor. Examples are safety sensors that provide a security or enter into a guarantee, intermediaries, who receive from the leasing company a commission, and banks that buy the debt of a lease agreement and assume the credit risk.

Classification

After the lessor

  • Manufacturer Leasing: The manufacturer of the leased asset is the lessor. However, this constellation is thus not applicable in practice. In general, manufacturers have their own leasing companies as subsidiaries. About this a kind of " manufacturer Leasing " is realized. A typical example is the leasing companies of the major automobile manufacturers. Leasing company with the name of a manufacturer do not need 100% subsidiary of the manufacturer, nor ever be a subsidiary of the manufacturer. At the company Linde Leasing GmbH have, for example, the company IKB Leasing GmbH and Dresdner Bank AG, a company share together 55% ( as of 2009). In general, however, these companies act through contractual arrangements in coordination with the interests of the manufacturer.
  • Lease at leasing companies without vendor lock-in: the lessor is not the manufacturer of the leased asset. He is a legally independent leasing company with no interests conjunction with a manufacturer that leaves a lessee for a specific lease object to use ( triangle ). The lessor financed the asset and applies for financing its profit. A bound on any manufacturers' interests leasing company may by any other manufacturer be a more cooperative partner with the replacement of leased equipment. The leases of vehicle fleets with the use of vehicles of different manufacturers also offer only free leasing companies.

After the lessee

  • Private leasing
  • Commercial Leasing

After special contractual relationships

  • Sale and Lease -Back:
  • Great Property leasing:

After alignment, the leasing company

  • Operating leases and
  • Finance leases

According to the leased objects

  • Equipment leasing
  • Real estate leasing
  • Vehicle Leasing ( special case of equipment leasing )
  • Fleet Leasing ( special case of vehicle leasing)

After the location of the registered office of the lessor and lessee

  • Cross -border leasing
  • Domestic leasing

After the contractual relationship between the lessor and lessee

  • Direct contractual relationship
  • Indirect contractual relationships by sublet

After the distribution

  • Direct sales
  • Vendor Leasing

After the object value

  • Small-ticket leasing
  • Big- ticket leasing

Lease

Leasing contracts are called contracts sui generis, ie, they are not specifically regulated by law.

Basic types

  • Full amortization:
  • Partial amortization ( residual value lease)
  • Renewal option with lease rate calculation on the basis of the residual value
  • Purchase option of the lessee
  • Put option of the lessor
  • Clauses to involve the lessee to a realization proceeds via a calculated residual value or obligation to compensate the difference between a liquidation proceeds under calculated residual value
  • Cancellable leases:

Variants

  • Leases with agreed Deposits:
  • Lease contracts with an agreed advance lease payments:
  • Leases with a tender right:
  • Leases with staggered lease payments:
  • Leases with variable lease payments:
  • Leases with an interest of the lessee on sale proceeds:
  • Vehicle lease with a mileage limit:
  • Vehicle lease with residual value fixation:
  • Service leasing:
  • Fleet Leasing:
  • Zero - leasing:

Tax and accounting law

Tax deferred

In the national tax law criteria are defined that delineate leases by lease-purchase agreements, hire purchase business, etc.. The criteria are varying from country to country. If the criteria for the economic allocation of the object does not satisfy the lessor, a civil lease is treated for tax purposes as a hire-purchase agreement or a hire purchase business. In this case, the contractor is the beneficial owner of the object.

Businesses can only receive tax and accounting benefits to the procurement of capital goods by lease if the lessor beneficial owner of the objects.

A lease contract that is considered for tax purposes as a hire-purchase agreement or a hire-purchase civilly remains, the lease contract. A civil transfer of the legal ownership of the end of the term requires the civil design as hire purchase contract.

Germany

A transfer of ownership to the lessee must not be the agreed fixed or likely target of a lease contract which is otherwise qualifies for tax purposes as a hire-purchase agreement. An agreed purchase option of the lessee may not be cheap, so for example, below the book value of the object be when the contract expires, since the legislature assumed in this case that the exercise of the purchase option is already determined at the conclusion of the contract and the transfer of ownership is the ultimate goal. If the contractual object is practically consumed by a contract period close to the useful life, the tax authorities assign the beneficial interest in the Contractor. With a full payback agreement for a short term, the financial authorities consider that it is economically irrational and provide concealed side agreements to transfer property.

A transfer of use agreement for a mobile asset is tax law as a lease-purchase agreement with assignment of the beneficial interest in the property to qualified contractors when

  • At full payout leases, the term of the contract is less than 40 % or greater than 90 % of the useful life of the object
  • A renewal option is agreed, the present value of the rental extension is less than the carrying value of the object to the point in time option
  • An option to purchase is agreed, the purchase option price is less than the carrying value of the object to the point in time option
  • A contribution from the contractor to the estimated residual value exceeds recoverable amounts, of the issuer is agreed by the maturity date of more than 75 %
  • A non- fungible object is the subject of the contract

Meets none of these criteria, the economic ownership of the object is assigned to the lessor, and the contract is also qualified as a tax lease agreement with economic allocation of the property to the lessor. For Real Estate Leasing different criteria apply.

Eligible leasing goods with assignment to the lessor by tax law or business law can be movables, real estate and related intangible assets, if they are also for third parties of risks and are fungible. A specially produced for a company and can be used only by this object is for tax purposes, however, always be assigned to the lessee ( the so-called special - lease).

In a hire-purchase agreement the object is economically attributable to the hire-purchaser. This must include in its balance sheet, both the object and the obligations under the hire-purchase agreement. The monthly costs consist of the interest portion of the lease installments and depreciation of the object.

When the tax provisions fulfilling lease the object is economically attributable to the lessor. The lease payments are fully guaranteed the attachable monthly cost of a commercial lessee, which identifies the object either as fixed assets, nor should account for the duration of liabilities from its financing.

20 % of the lease payments for movable assets ( § 8 no 1d) TTA ) and 50 % ( to 31 December 2009: 65%) of the lease payments for immovable assets ( § 8 No. 1e) TTA ) have been the corporate tax reform in 2008 of commercial lessees, the profit for the determination of the tax base for trade tax added back. The trade tax advantages of leasing are thus virtually eliminated, especially at the same time the inclusion of interest paid on loans was reduced in the trade income. In a publication of the Research Institute for lease at the University of Cologne, a disadvantage of leasing is detected.

Switzerland

Leasing is classified in Switzerland as a transfer for use of a special kind. The accounting of the property by the lessor and complete approach of the lease payments, known there as leasing interest as a business expense by the lessee is the usual accounting of these transactions. The case law and recommendations of the Swiss Leasing Association (SLV ), which represents most Swiss leasing companies according to their own information, the conditions for the aforementioned treatment define fuzzy. The terms of the leases are to be based on the depreciation periods and tax avoidance purpose must be excluded. A finance lease contract ( by definition of financial leasing in Switzerland) is for a Code of SLV not be less than two-thirds of the economic life of the leased property. Significant tax benefits can not achieve Swiss lessee according to the SLV.

Austria

The Federal Ministry of Finance meets in the Income Tax Regulations 2000 ( Income Tax Regulations 2000; Rz 135 et seq. ) One of the German Lease definition delimitation to lease, in detail there are deviations for the determination of the attribution of the leased property to the lessor or the lessee.

A number of features are in the vehicle leasing. The deduction is excluded both purchase as well as lease. A luxury limit limits the maximum depreciable acquisition cost of a vehicle and therefore the pro rata attachable as an operating expense portion of a lease payment.

Accounting

While tax advantages of leasing are determined by the respective national tax law and the selection made on that definition of lease to purchase transactions, are specific to international accounting standards such as U.S. GAAP and IFRS differ definitions. This limits the design possibilities of leasing contracts, if they are to fulfill to be awarded by reporting and tax benefits for all accounting standards classification leasing with economic allocation of the property to the lessor.

The tax allocation is regulated in Germany by the leasing decrees of the Federal Ministry of Finance, with a distinction between movables and real estate decrees decrees. Hire purchase and lease are deferred.

U.S. GAAP

U.S. GAAP defines in determining SFAS 13 is a distinction in capital leases and operating leases. While the German tax law allows a maximum term of leases for 90 % of the useful life of the object as distinct from hire purchase, the limit for operating leases in SFAS 13, for example, reported at 75%.

A lease is classified as a capital lease if one of the following four conditions is true, otherwise it is operating leases:

  • There is a transfer of ownership at the end of the contract period.
  • There is a beneficial for the lessee to purchase or renewal option at the end of the contract period. ( bargain option)
  • The contract term is 75% or more of the economic useful life of the object.
  • The present value of all to be paid by the lessee payments, calculated using the effective interest rate of the contract is 90 % or more of the market value of the property. ( fair market value )
  • It is of special leases, the object is not usable without major modifications for third parties.

The lessee must enable the present value of expected future cash lease payments to the lessor in a capital lease as a fixed asset. This asset value is an appropriate position as a liability resulting from this lease obligation on the liability side of the balance sheet over. Current lease payments are split into a principal portion and an interest portion. The asset itself is capitalized and depreciated over the normal useful life.

A disadvantage of this method of accounting for the lessee, the assets and liabilities stemming. This is accompanied by a deterioration in the equity ratio. Can a lease agreement, however, are classified as operating leases, with the equity ratio does not deteriorate. The lease payments are operating expenses, balance sheet items are not available.

IFRS

IFRS defined in the applicable provisions of IAS 17 a distinction between finance leases and operating leases. For example, qualified IFRS a contract as a finance lease, the object is allocated to the fixed assets of the lessee analogous to the Lease, if the present value of all guaranteed by the lessee payments under the contract exceeds 95 % of the property value. An analogous condition known U.S. GAAP for classification as a capital lease, however, defines the boundary of the present value of all guaranteed payments than 90 % of the market value of the property at inception of the lease.

Finance leases ( capital leases ) are economically as finance purchases, while operating leases are pure tenancies.

The accounting classification of contracts with finance leases is as for capital leases under U.S. GAAP with the same disadvantages for the lessee.

A lease is classified as finance leases under IFRS, if one of the following five conditions are met, otherwise it is operating leases:

  • There is a transfer of ownership at the end of the contract period.
  • There is a beneficial for the lessee purchase option at the end of the contract period. ( bargain option)
  • The contract term is 75% or more of the economic useful life of the object. ( The rule speaks only of major part, which is a different interpretation. )
  • The present value of all to be paid by the lessee payments (minimum lease payments ), calculated using the effective interest rate of the contract, is almost the fair market value of the property at inception. ( Substantially all of fair market value ) (usually set at 90%)
  • It is of special leases, the object is not usable without major modifications for third parties.

The presentation here covers only the essential classification features. There are extensive decisions on specific contractual arrangements.

There are proposals to unify the provisions of U.S. GAAP and IFRS and in particular to account for obligations and rights under operating leases as well. The informational value of the balance sheet is reduced if, for example, airlines whole aircraft fleets can lease without resulting liabilities are shown in the balance sheet. The International Accounting Standards Board (IASB ) will decide by mid- 2011 new rules bring significant changes for lessees with it, must create the financial statements in accordance with IFRS. Balance-sheet benefits of leasing, presumably omitted.

Leasing company

Organization and functioning of

Holding company and a bunk model

Some leasing companies work with owned companies that acquire the leased assets and lease to the leasing company, which they then leased to final consumers. Ownership and leasing companies often have the same owner.

This construction has two advantages.

It created tax benefits because the holding companies are located with high fixed assets in communities with low trade tax or abroad. Further gains can be controlled by appropriate design of the lease agreement between ownership and leasing company to the place of the holding company. These structures are necessary but partly also for reasons of competitiveness in order to achieve tax neutrality to credit financing. By late 2008, leasing companies were excluded from the banking privilege of trade tax, since then can take this claim only in purely financial leasing companies.

On the other hand, this design facilitates the financing. Leasing companies finance often through sale of lease receivables to a bank, because this is a tax-neutral because of the trade tax disadvantage compared to banks. The actual payment obligation is then used for payment of the leased property and covers the margin of the leasing company. The creditworthiness of the lessee plays a role. In the construction of a holding company can also claim the lease agreement between ownership and leasing company are sold. In particular, leasing companies from manufacturers with an interest in the sales of their products also to low credit customers can refinance accomplish so, but carry the risk of default, because the contract between ownership and leasing company is not affected by interference of the contract between the leasing company and consumers. More favorable refinancing rates can be another reason for the refinancing of the leasing business between ownership and rental company.

Refinancing

Some large leasing companies have financing departments or independent financial subsidiaries that represent the newly concluded leasing contracts into packets according to maturities and risks and negotiate these larger volumes with banks. The change in interest bearing securities ( asset-backed securities, asset -backed commercial paper ) and their sale on the capital market is practiced.

Smaller leasing companies are looking for, however, in each case, a bank refinanced or accept the refinancing of leasing companies specialized company and can only in case of success a lease application. In most cases, the compensation payable by the lessee minimum payment is sold from a lease agreement.

For large objects special financing with several banks involved often are placed. Financing by shareholders as investors in the object is a different variant.

Some companies work with high net worth, which is implemented via Leasing Fund and the status of the investors atypical silent partner, which brings tax benefits for investors, but also risks. Due to the insolvency of leasing companies and problems with compliance with the prospectus promises some of these funds have been criticized.

As a result of the financial crisis banks have due to the loss of parts of its equity capital reduces the refinancing of leasing operations or discontinued, including regional banks such as LBBW. Refinancing funds have become more scarce and expensive in the leasing industry. The discrediting of the asset-backed securities as an alternative due to the financial crisis added.

Competitive disadvantage

The leasing industry in Germany laments the distortion of competition from banks and credit financing.

Support programs of the countries or the federal government for investments often rely on subsidized loans, which are not open to a lease financing.

Since late 2008, a finance lease is in Germany requires a permit financial service within the meaning of the German Banking Act ( KWG). This is accompanied by an increased red tape by obligatory reports to BaFin, which claimed most of the small leasing companies comparatively stronger.

Tax discrimination against banks in Germany were, however, Federal German leasing company eliminated inadequate in the opinion of BDL. Interest paid on a pro rata can be a quarter to trade earnings [ see § 8 No. 1, letter d), e) Trade Tax Act ] are added, the tax base of the trade tax. Refinancing of banks is in the so-called bank privilege except § 19 GewStDV it. The favored by leasing companies was introduced in 2008, but restricted to companies that operate exclusively finance leases. Supporting and auxiliary businesses (eg services ) are to an extent of 50 % harmless so that the vast majority of companies can take the alleviation it.

For the lessee is the organization of a leasing company irrelevant. An efficient approach should be reflected in fair contract conditions and favorable conditions.

Fraud

In the past there have been several cases of fraud, most famously the cases Flowtex and Kronenberg were ( Flowtex with pianos ). Not existing rigs were sold to leasing companies and leased back. For devices that are not otherwise connected than cars with clear documents such as a vehicle registration certificate, fraud of this kind from the information layer of a leasing company is difficult to see. In other cases, companies have fraudulently fraudulently obtained loans by several leasing companies also sold existing machines and rented back.

The sale of the leased equipment and the descent of the lessee is another variant fraud.

If supplier and lessee jointly pursue the goal of committing a crime against a leasing company, which is particularly difficult for a leasing company to recognize. Delivered to the lessee devices are billed incorrectly declared and priced by the supplier, on the other hand confirmed the lessee against the leasing company to obtain the declared devices. With the payment of all or not delivered in the declared quality objects to the supplier the supplier and the lessee have fraudulently obtained a loan. Cases of this kind are usually only detected in case of insolvency and ensuring the objects. Since the leasing companies purchase rights as the acceptance of the equipment cede to the lessee, the settlement in criminal energy of contractors has weaknesses.

Leasing market ( Germany )

Data from the Federal Association of German leasing companies and independent economic institutes are given in the following figures:

The volume of new business leasing was estimated for 2009 is as follows:

  • Property 2.8 billion €
  • Equipment 39.4 billion €

The forecast includes a financial crisis caused by the decline in new business by approximately 20%. According to the Association which is not only the demand. Many leasing companies have problems with the procurement of funds for refinancing as banks reduce their credit exposure.

The total number of financed by leasing equipment is specified with about 200 billion euros.

The mainly leased product groups are:

  • Road vehicles 63.4 %
  • Production machinery 12.1%
  • Office equipment and IT 9.6%

Leasing in Germany should have a share of around 21% of the total investments in equipment. The lease rate called number differs greatly when viewing individual industries. The proportion of 2008 financed with leasing investment in some industries:

  • Construction 82.7 %
  • Trade 34.8 %
  • Manufacturing 18.3%
  • Services 12 %

The number of independently operating and actively participating in the market leasing companies in Germany is difficult to determine. Many leasing companies are real estate companies that were founded as a property exclusively for the financing of a particular leasing property. After mergers of smaller leasing companies established company names were often retained, although it is no longer operating independently of each other company. Leasing companies are sales-oriented and occasionally establish subsidiaries to talk about the company name as X Auto Leasing GmbH customers with specific interest. The BDL Association of German leasing companies belong to about 190 leasing companies. A study published by the journal FLF financing Leasing Factoring in issue 6/2009 list mentions 2221 active leasing companies. 344 companies have applied for a table of the Bundesbank as of September 2009, the license to conduct financial leasing transactions.

The structure of the leasing companies in Germany is characterized by small companies. According to information of the BDL Association of German leasing company half of its members employ fewer than 15 employees and only a quarter of the Association organized companies employ more than 50 employees. Only three leasing companies in Germany are listed.

Some business journalists suspect because of the decline in sales in the financial crisis and due to the introduced in 2009, supervision of leasing companies by BaFin an imminent industry consolidation through mergers and acquisitions.

The industry recorded first time in 2009 in all areas falling object statements. The largest object field of road vehicles declined by over 20 percent. In the middle and upper class, the traditional leasing segment, new registrations fell by up to 20 percent and, consequently, new leasing deals. Existing leases were often prolonged in the financial crisis, rather than complete new. It already takes place a market consolidation of the leasing business, with banks in the crisis to focus on their core business and less on funding activities in leasing companies ( research institute of the lease ). Banks need to Basel II a rating even with its customers, the refinanced leasing companies perform, and in addition also evaluate the customers of leasing companies. A bad credit rating does not allow any further refinancing of new leases under certain circumstances. Some leasing companies thus have problems in refinancing, as rising interest costs by the bad rating. These price increases have to be passed by the affected party to the lease the lessee, which will probably have a market consolidation of the leasing provider result. A comprehensive credit crunch for leasing companies, it is not to early 2010 but.

Leasing market ( Switzerland )

The Annual Report 2011 of Swiss Leasing Association (SLV ) the following information as at 31 December 2011 are set out, relating to the association members:

New business (sales in CHF billions ):

  • Car excl fleets ( private and commercial) 6.00
  • Mobile capital goods excl fleets (including commercial vehicles) 3.08
  • Fleets 1.08
  • Real Estate Leasing 0.15 New business total 10.31

Inventory ( in CHF billion ):

  • Car excl fleets ( private and commercial) 10.69
  • Mobile capital goods excl fleets (including commercial vehicles) 8.77
  • Fleets 2.06
  • Real Estate Leasing 1.17 Inventory total 22.69

The market share by sector:

  • Captives ( trademark or importer close companies) 48%
  • Swiss banks 37%
  • Bank Related companies 9 %
  • Independent companies 6%

According to estimates of the members of the SLV SLV from cover about 80-90 % of the total Swiss leasing market, the total market is expected to have a stock of CHF 26 billion contract volume.

Review of lessee view

An evaluation of a leasing business as advantageous or disadvantageous is possible only in specific cases compared to existing alternatives. Furthermore, the individual weighting of pros and cons as well as the individual assessment of risks plays a role.

Benefits

For a lessee leasing can have the following advantages:

For non- must be accounted for freelancers, agencies, associations, etc., in contrast to commercial lessees are the benefits but only partially to bear in private for the most part not at all.

More detailed consideration of some possible advantages of leasing:

  • Liquidity is spared ( instead of a unique higher cash outflows, there is a continuous outflow of liquidity rather than lower ).
  • An agreed with banks credit remains unrestricted and is not taken by the leasing investment to complete. However, the lessee must then ensure that the leasing company is not refinanced the contract at the bank of the lessee.
  • In Germany the lease payments for income tax and corporation as business expenses are fully tax deductible, unless the lessee recognizes the leased asset does not have to activate (activates see so-called regulations promulgated by the Federal Ministry of Finance). For trade tax, however, is done acc. § 8 No.1 GewStG partly be an addition of these business expenses. It is, however, only seems to have an advantage over the credit financing, for bank interest and depreciation are also fully tax deductible. However, the tax burden in the short-term leases are reduced because the lessee is not bound to the useful lives of the depreciation tables in return for depreciation.
  • Leasing is neutral balance for the lessee. For tax purposes appropriate to lease decrees leases with the leased property by the lessor, the following applies: They are basically off balance sheet and thus do not appear in the balance sheet of the lessee, the only recorded the lease or rental expense in its profit and loss account as operating expenses. The lessor the leased assets are capitalized as fixed assets or leased assets and depreciates them according to the depreciation periods. The equity ratio of the lessee is not deteriorated by increase in total assets.
  • The leasing costs are recurring payments, which occur parallel to the use of the leased property. Financial inputs are not necessary because the subject is constantly self-financed by the productive use ( " pay as you earn" -Effekt/Kostenkongruenz ).
  • The periodic lease payments are intended to in-house planning as secure basis for calculation.
  • The benefits of leasing provide opportunities for operational innovation and rationalization.
  • A disposal or recycling at end of contract by the lessee not applicable - the leasing object is returned after the expiry of the lease period to the lessor. By return of the leased asset and re-covering the plant objects of a company always stay on the latest technical standard, however it depends on the competence of the leasing company on whether this a successful recovery is possible. A carpenter who no longer needed a leased woodworking machine, for example, their value and their sale options knows better policy. The restitution to the lessor may also be associated with costs for uninstalling and transportation.
  • Any lower purchase prices of the lessor, for example due to larger quantities, can be passed on to the lessee in the form of favorable lease terms.
  • Lease, with the service by the lessor for the lessee saves administrative costs.

Disadvantages

The following are disadvantages or possible disadvantages for the lessee with respect to:

  • Private leasing:
  • The lessee does not acquire ownership of the leased asset and thus has no options for a potential sale when not in use or liquidity problems.
  • In case of legal disputes, such as in the areas of sales guarantees the triangular relationship lessor - lessee - manufacturer comes into play. The lessee must make, so to speak "on own account " claims may claim against the supplier or manufacturer. A suspension of payments to the lessor is usually possible not readily available.
  • In the case of loss of the object during the lease contract term, for example in case of theft or accident of a vehicle, though usually replaces a self- insurance, the loss of the object of the lessor at fair value, the lessee must, however, pay fees and damages to the leasing company for the early termination of the lease. This has, among others, for the early redemption of funding via a fixed term in turn costs. In addition, the book value of the object can be higher than the superseded market value; a difference has to balance with the required compensation of the lessee. However, in the financing of vehicles with installment loans, there is a similar problem. The replacement market value of the lost object is generally less than the redeemable residual credit. Both asynchronous value streams run as a vehicle in its first year of use has a strong loss in value, while credit installments at the beginning of the term include a high interest component and correspondingly lower repayments over.
  • The uncertain costs upon return of the leased equipment are taken into account. Conditions, under which the lessee shall make about the devices in their original packaging with all manuals at a bearing of the lessor, may be associated with considerable costs. Furthermore, there is often controversy over the distinction between normal wear and by the lessee to supporting maintenance costs. Minor flaws that do not affect the basic usability, are often accepted by an owner and not repaired for economic reasons; a lessee, however, is bound to the maintenance obligation. A decision to be scrapped at an uneconomic extensive repair can not meet without prior agreement with the leasing company for the purchase of the property by a lessee, in case of doubt he must be doing maintenance.
  • For complex equipment, such as the IT department of a company, upgrades obtained by lease financed by and often not congruent end of the term of the lease contracts of all more components. A total renovation of equipment is then loaded with costs for early termination still ongoing leases.
  • Complex technological equipment often can not be replaced in due time on the day of the end of a lease. Companies that rely on this equipment to go with the possible loss of rights of use are at high risk if they have not agreed on an extension option.
  • When liquidity problems and negotiating deferrals, a local bank, to consist of long-term relationships, be a co-operative partner. Leasing companies have with the threat of withdrawal of objects that may require companies to operational requirements, a means of asserting their interests.

Alternatives

Leasing is in competition with other alternative forms of financing:

  • Venture capital
  • Mezzanine capital
  • Factoring
  • Installment loan
  • Installment payment transaction

Other meanings

The term lease is a spirit of the times corresponding anglicism popular, often transactions are denoted by, which are not leases. An example are temporary employment agencies, which often advertise the posting of workers in an establishment other than personnel leasing.

When companies lease of Christmas trees or leasing of toilets offer for events, it may involve leases, although the assumption of normal leases is more likely in the civil law sense. The concept of leasing has in this context, but not the usual meaning as a financing alternative of investment goods.

With leasing of tablecloths for restaurants and similar offerings usually is the regular service of pick and cleaning at the heart of value creation. It is questionable whether the contracts concluded under civil law to be regarded as the predominant rental or leasing contracts.

Trivia

Gerhard Polt has written a satirical story about leasing. A video project that deposited the self spoken of Polt story of a Hitler speech, has become very popular on the internet.

Cross-Border-Leasing Forfaiting Equity (finance) External financing Credit (finance) Shareholders' equity
61765
de