Before knowing the landlord and renter examples financially, it is important to identify the difference between the two. The elements that make up a finance lease are the lessor, the finance company and the lessee.
The agreement is made through a finance company which acquires an asset that the lessee needs and rents to the lessor through a contract to be paid in long-term installments.
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The main categories of assets subject to financial leasing They are:
- Heavy machinery
- Facilities
- Medical equipments
- Motor vehicles
- Estate
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In this article you will find:
Landlord and tenant
In a leasing contract, lessor is basically defined as the party to the agreement that receives payments in exchange for the use of its asset or property.
The finance lessee in a lease is therefore the client, the one who pays for the use of the asset or property to the owner, in this case the lessor.
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The lessor collects rent as a reward for contracting the asset from the lessee. The lessor retains ownership of the asset, but the lessee gets exclusive use of the asset (provided he observes the terms of the lease).
The lessee will make rental payments that cover the original cost of the asset, during the initial or primary period of the lease. Also, there is an obligation to pay all these rentals, sometimes including a balloon payment at the end of the contract. Once all have been paid, the lessor will have recovered his investment in the asset.
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The client agrees to pay these rentals during this period and, technically, a finance lease is defined as non-cancellable, although it is possible to terminate it early.
What options are there when a finance lease ends?
What happens to end of the contract period of a finance lease Primary will vary and depend on the actual agreement. However, the following are possible options:
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- The lessee sells the asset to a third party, acting on behalf of the lessor.
- The asset is returned to the lessor to be sold.
- The customer enters a secondary lease period.
When the first option occurs and the asset is sold, the customer can be given a rent refund equivalent to to the majority of the proceeds from the sale (minus the costs of disposal) as agreed in the lease.
For the second option, if the asset is retained, the lease enters the secondary period. This can continue indefinitely and will end when the lessor and lessee agree or when the asset is sold.
Finally, for the last option, the secondary rent can be much lower than the primary rent or the lease can continue month to month at the same rent.
Examples of landlord and tenant
Example 1
Let's consider an apartment in the city center for rent (this would be the asset). The tenant, the person who wants to rent is the tenant and the owner, owner of the property is the landlord.
They both sign a contract that is generally valid for up to one year, and the tenant pays the monthly rent to the owner, while the landlord receives payment from the tenant.
Example 2
Another of the more common lessor and lessee examples is when these elements participate in a vehicle finance lease. A client is in need of acquiring a car and turns to the Ferrazzo car company.
One of the workers talks to him about the option of a financial lease and the client sounds interested. He is convinced and agrees through a monthly rental contract to pay the asset, in this case the car, for a period determined by the lessor, in this case the worker of the car company Ferrazzo.
Example 3
A health club (landlord) was looking to invest in new gym equipment. The total amount financed was $ 20,000 dollars with the agreement established in 60 monthly payments without deposit.
Fundamentally, the balloon payment was set at $ 0, which means that the customer (or more likely users of their gym, which would be the tenants) are free to use the equipment knowing that there is no responsibility at the end of the agreement.
The option after 60 months will be to sell the equipment, retain the funds made, or enter a secondary rental period for a relatively small amount.
In conclusion, the lease is a contract between the lessor and the lessee for the use of the asset or property. Describes the terms of the contract and establishes the legal obligations associated with the use of the asset.
Both parties are signatories of the agreement and are obliged to comply with its rules. If either party violates the conditions of the lease, the contract can be terminated.
For example, if the tenant carries out illegal activities on the landlord's premises, the latter has the right to cancel the contract and evict the tenant from the property.
Some leases include the option for the lessee to purchase the leased asset or property at the end of the lease period.
