Mechanics of Leasing

The mechanics of leasing tells various aspects of the leasing. It includes various steps that are required for taking a lease. It considers all the legal, procedural and accounting aspects of the leasing. The mechanics of leasing also takes the agreement of the leasing into consideration.

The various mechanics of leasing are:

Legal aspects of leasing

The legal implications related to the leasing of assets are:

The lessor should legally authorize the lessee to use the asset and also should give the lessee the possession of the asset peacefully.

The lessee is under the obligation for the payment of lease rental as directed by the lease agreement, take the responsibility of the leased asset and return the leased asset to the lessor after the expiry of the lease period.

Contents of a lease agreement

The contents of a lease agreement contain the obligations and legal rights for both the lessor and lessee. Typical lease agreement content is consisted of -

Description of the asset, lessor and the lessee
Place and time of the delivery of asset
Time and amount of lease rental payment
The responsibility of lessee for taking the possession and delivery of the asset
The right of the lessee to have the benefit of assets
The responsibility of lessee for registration, repair and maintenance of the asset
The responsibility of lessee to take the insurance on the lessor's behalf
The responsibility of lessee to return the asset on the lease period's expiry
The lease renewal option for the lessee

Procedural Aspects

The leasing procedure generally contains the following steps:

The lessee enjoys the right to select the asset
The lessee negotiates over the lease term
The lessee has to approach the leasing company and submit the application for the asset
The lessee selects the assets and the lessor buys the asset that is delivered to the lessee
The lessor and lessee have to sign the agreement of lease

Accounting treatment of leases

The operating leases are added in the books of lessor as advantage and the payment that is earned on the lease is considered to be the expense of lessee and income of the lessor. The finance leases, on the other hand, are capitalized in the lessee's books.