The article gives you the details of various types of contracts and where they are used.
Many Types of leasing Contracts
Not all types of leasing contracts are known to everyone. There are many types of leasing contracts that are not normally used for general lease. The actual content of each lease contract may vary depending on the parties involved. The terms of contract are decided by the mutual convenience of both parties.
General Lease Contract
This is also known as operating lease contract. This is used for the assets that depreciate fast. It is most prevalent in IT industry where the best equipment available today will become obsolete tomorrow.
In these lease contracts, the lessee retains the ownership of equipment till the end of lease and since the equipment is obsolete by the end of contract no one is interested in purchasing the equipments even at scrap value.
The advantage of such contracts is it is tax friendly and front end loaded so that the value of equipment is recovered before the obsolescence takes place.
Continuous or Master Lease
In such lease contracts, master lease schedules are prepared and signed by the contracting parties and many types of equipment that were not the part of original leasing contract are added to the list. The general terms and conditions are governed by the master contract but the lease rentals and the end of lease payment are governed by separate schedules
Such contracts are useful when you intend to lease more equipment to the same person or firm. Convenience is a major benefit of such agreements.
Irregular Payment or Skip Lease Contracts
When the leasing is contract is made with firms with known seasonal business (such as agribusiness) the lessee knows that the lessor cannot make payment during lean season and provides for it in the lease contract. The months when no payment is expected is written the contract. This type of contract is good for seasonal business having an irregular cash flow.
Such contracts can be made by cash rich companies mainly for the purpose of account balancing. Such contracts may or may not have the acceptance of code for accounting practices. With this kind of accounting practice, cash can be raised in case of difficulties of cash flow.
Deferred Lease Contracts
In such contracts the first payment does not start until 60 or 90 days have expired from the date of lease. The deferred lease contract is useful for the firms or the individuals with no money to pay upfront. The use of equipment can be started from day one and the first payment made after the stipulated number of days are over. After the first 60 or 90 days it is normal leasing contract with conditions similar to leasing contracts.
Capital Equipment Lease Contracts
These contracts provide for the lessee transferring the ownership of equipment after the lease term for a nominal payment of $1. The purchase price and the financing costs are spread over the entire term of lease and at he end of lease, the lessee get a nominal sum to transfer the ownership. Such contracts are in essence the financing contracts clothed as leasing contracts.
So you can use a type of contract suitable to both parties to the contract.