Operating leases
Operating leases

The following Banking & Finance practice note provides comprehensive and up to date legal information covering:

  • Operating leases
  • Characteristics of an operating lease
  • Advantages of an operating lease

This Practice Note looks at the main characteristics of an operating lease and the key advantages of a lease of this nature in comparison to a finance or capital lease:

  1. for more information on finance leases, see Practice Note: Finance Leases

  2. for an illustration of the key characteristics of operating and finance leases, see Practice Note: Lease finance structures, and

  3. for information on alternative structures, see Practice Note: Alternative Leasing Structures

Characteristics of an operating lease

An operating lease is generally for a short term (less than 10 years) and runs for less than the full economic life of the asset. The key difference between an operating lease and a finance lease is that under an operating lease the risk in relation to the value of the equipment throughout the lease period falls upon the lessor rather than the lessee.

Once the initial lease period has come to an end, the lessee will return the equipment to the lessor or, alternatively, the parties may negotiate and agree terms for the continued use of the asset by the lessee and a further lease period will commence. The level of the costs for any additional lease period will reflect the market valu

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