General information

Leasing is a financial instrument that allows legal entities and individual entrepreneurs to acquire motor vehicles, special-purpose equipment and equipment without significant diversion of working capital. Land plots, military equipment, cultural monuments, natural objects, food products, construction materials, and other consumable items cannot be taken on leasing financial rent. 

Leasing for legal entities is divided into three types:

• In financial leasing, the agreement is concluded for a period equal to the useful life of the property.
• In operating leasing, the agreement term is shorter than the useful life of the asset. At the end of the agreement, the lessee may purchase the property or leave it to the lessor.
• In sale-and-leaseback leasing, the client sells its property to the lessor and then continues to use it as a tenant.

The main difference between leasing and renting is the lessee's right to purchase the property at its residual value upon expiration of the agreement term. In renting, the tenant does not have such an option.

What is the difference between leasing and renting

• In leasing, two agreements are concluded: one between the seller and the lessor, and one between the lessor and the lessee. In renting, there is only one agreement — between the landlord and the tenant.
• In leasing, new or used property is transferred to the lessee by a legal entity. In renting, a car, equipment, special machinery, etc. may belong to an individual.
• Leasing for business differs from renting in the allocation of liability for property damage: all expenses in the event of damage are borne by the lessee, while in renting they are borne by the landlord.
• Anyone may act as a landlord. Only a leasing company may engage in leasing.

Another difference between leasing and renting is accelerated depreciation — this is its main advantage. The landlord does not receive any tax benefit.

Operating leasing is a type of transaction in which an agreement is concluded between the lessor and the lessee for a period shorter than the useful life of the leased asset. Operating car leasing or other property implies that, at the end of the agreement term, the client may purchase the car or other asset covered by the leasing agreement or return it to the company.

The residual value of the leased asset is the price that the lessee must pay to the lessor in order to obtain ownership of the leased property. 

The residual value is fixed in the lease agreement and represents the total amount of all buyout payments. In case of early buyout of the leased asset, the amount of the residual value may be increased.

In leasing, there are two types of parties: the lessor and the lessee. The lessor is the organization that owns the leased asset and provides it for lease to the lessee. The lessee is a legal entity that uses the leased asset for a specified period and makes lease payments for it.

Therefore, the owner of the leased asset is the lessor. The lessee has the right to use the leased asset for a limited period, but does not have ownership rights to it.