Apohan Corporate Consultants Private Limited

Where businesses realize their dreams!!!


Consulting Services for Business Lease Contracts

Apohan Corporate Consultants Pvt. Ltd. > Financial Strategy > Consulting Services for Business Lease Contracts

Lease Contract Advisory

Concept of lease:

In this transaction, a movable or non movable asset is not sold but is given for use on a periodic payment basis with the provision of taking the Asset back at the end of lease or compulsorily transferring to the lessee permanently.


Lease strategy:

1. In case of liquidity crunch, selling the Asset and leasing them back
2. Plant and machinery assets instead of buying them
3. Replacing the least least with the purchased assets
4. Converting and operating lease to finance lease and vice versa
5. Identification of the assets for which there is mature lease market
6. Approaching the lease Finance Companies, are the leaves finance divisions of the banks to get finance for leasing assets
7. Can the various subsidies for normal assets be availed for the leased assets as well?

Apohan helps company in in overcoming the project capital problem by providing a suitable lease strategy.


Classification of lease contracts on various bases

Variants of lease products based on ultimate transfer:

Financial or capital lease or hire-purchase:

It is a long-term and non-cancellable contract in which the lessee company purchases it at the end of the lease period.

Operating lease:

It is a short-term and cancellable contract in which the lessee company replaces or returns the equipment at the end of the lease.

Combination lease

It has mixed features.


Classification of lease deals based on the number of parties:

Sale and leaseback:

The lessee first sells his own assets to the lessor (financier) with an agreement of leasing then back. This is done to get additional liquidity in the business. Do the overall cost of a lease may be higher, business gets a lot of capital if there was a shortage. There might be a for the agreement for buyback. The business must negotiate the contract keeping the right of exclusive use and possession; why is the Businessman would have to windup a business.

Direct lease:

In this, the asset is either owned by the lessor or he acquires it first from third party Equipment supplier. Here, there are three parties viz. equipment supplier, lessor, and lessee.
Occasionally, the lesser and Equipment supplier can be the same.

Subleasing:

In it an original lessee leases out the equipment to another company or sub-lessee the provisions of the original lease.


Classification based on how the lease is financed

Single investor lease:

In this, the lessor arranges the finance for the asset as equity or debt (taken by lessor). The investor recovers money from the lessor in case of a default by a lessor. The lessee pays the lease rentals to the lessor.

Leveraged lease:

In this, equity is provided by the lessor. Debt is provided by a lender.In a case of default by the lessor, the lender recovers money from the lessee. A trust may manage the relationships & contracts.


Classification of the leases based on the nationality of the parties:

Domestic leases:

When all the parties to the leaves are residents of India, it is called a domestic lease.

Import lease:

It is a lease in which lessor and lessee reside in India and the equipment supplier is a foreigner.

Cross-border lease:

In it either lessor is an Indian or lessee is Indian.


Classification based on what is leased out

Immovable assets:

Real estate, MIDC plot, industrial property, plant and machinery

Movable assets:

Vehicles, logistics equipment, tools, manpower


Sharing of scope in Lease Agreement:

The risk & cost of insurance, taxes, repair, maintenance, property taxes, wealth taxes, any other taxes, sanitation, expert operator (such as helicopter pilot), utility, and interior maintenance (in case real estate) costs is shared between the lesser and lessee. In a true lease, the lessor get only tax benefits and bears all the risks.


Aspects of lease contract:

1. What is the duration of lease? Can it be extended?
2. Whose account the depreciation of the least asset can be shown?
3. How the lease rentals are paid?
4. Can the attack be transferred early?
5. Can the lease be cancelled?
6. Is the Asset transferred at the end of lease period?
7. What is the mode and periodicity of payment?
8. Who bears the cost of insurance?
9. What happens if the plant and machinery is stolen or becomes obsolete or gets damaged?
10. Who pays the Various taxes, levies, charges, related to the position, use, etc
11. Who carries out transport and installation?
12. What is the responsibility of the defect?
13. Who bears the burden of tax of transfer at the end of leaves?

14. Who & whether the equipment is upgraded

15. Whether a replacement equipment will be given


Apohan services:

1. Formulation of a lease strategy to support an optimum capital structure
2. Economics of lease based on life cycle cost, computing the cost of liquidity
3. Identification of a lease company to procure the capital goods, plant and machinery, tools, etc
4. Formulation of a a full proof lease contract
5. Application of suitable lease formats to change the business model


Bookmark this page