Advantages And Disadvantages Of Leasing Agreements

The lessor as the owner of the asset can benefit from various tax advantages such as depreciation, investment allowances, etc. Indeed, leasing has been used successfully by leasing companies to reduce their tax debts. The rental of assets and real estate is an ancestral practice that has gained momentum in recent years. According to “Marwan Mohammad Abu Orabi” (2014) (published in the Global Journal of Management and Business Research: C Finance), a lease agreement is an agreement between the lessor (owner of the asset) and the taker (user of the asset) in which the property is made available for a fixed term in exchange for periodic payments known as rent or rental. Leasing is gaining popularity to solve problems related to the investment requirement when buying assets. It is necessary to understand the pros and cons of leasing before opting for the rental of the property or heritage. Leasing was introduced in the United States in the 1940s and 1950s. It is estimated that the leasing industry in the United States funds approximately 25% of the acquisition of capital. The leasing concept was developed in India by the group, which founded the First Leasing Company of India Limited in Chennai in 1973. Pros and cons of renting to the tenant: leasing is a form of financing that does not diminish or affect the borrowing capacity of the leasing company. It is considered a hidden form of debt that does not appear to be an obligation in the lender`s balance sheet.

It therefore has no impact on the debt ratio of the company that acquires the use of an asset by leasing. l.Easing costs less than other alternatives available. In addition, leasing allows companies to acquire equipment without going through strict formalities. Leasing financing is therefore faster and cheaper. Both the user and the owner of the asset, i.e. the taker and the lessor, have a number of rental benefits and disadvantages listed below. Let`s take a look at it. Leasing means an agreement between the leasing company (“lessor”) and the user (the taker), the former undertakes to purchase the capital equipment intended to be used by that same lease. In short, leases are better for flexibility, while long-term leases are better for stability. Leasing is the easiest way to finance capital assets. No mortgage or assumption is required. Restrictions on long-term borrowing from financial institutions are avoided.

Leasing formalities are much lower than for borrowing from financial institutions. Lease Company Limited was later founded in Mumbai. Now, IFCI, IDBI, ICICI, State Bank of India, SIDCs, Sundaram Finance and other leasing companies operate in our country. At the end of the lease period, the tenant reserves the right to purchase the property and terminate the lease in order to offer flexibility to the business. The following benefits are available to owner 1. The tenant only gets the right to use the estate. In the event of a transaction by the leasing company, the asset may be withdrawn by the underwriter, which disrupts its activities. The article discusses the pros and cons of the tenancy agreement for both the tenant and the lessor.

Fotos: Kathrin Leisch
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