A Business Encyclopedia

Sale & Lease Back and Direct Lease

Definition: The Sale & Lease Back and Direct Lease are the other kinds of leases that offer different benefits to the parties to the lease agreement. The lease refers to the contractual agreement between the lessor, who owns the property and the lessee to whom the right is transferred to use the lessor’s property for a particular period of time in return for periodical payments.

Sale & Lease Back: Under this kind of lease agreement, the vendor of the asset sells his asset to the leasing company and leases it back in order to enjoy the uninterrupted use of the leased asset in his business operations. Generally, this kind of lease agreement is used by the entrepreneurs who want to free their money blocked on the assets or equipment and use that money for some other purpose.

The sale & lease back arrangement could pose problems for the leasing company because it is quite difficult to establish a fair market value of the asset being acquired. This is because, the secondary market for the asset may not exist and also the depreciation value claimed for the tax purposes could not be more than the value claimed earlier, by the vendor.

Direct Lease: The direct lease is a simple form of a lease agreement where the lessor and the lessee are two separate entities and may have either the operating or a finance lease agreement. There can be two types of direct lease: Bipartite Lease and the Tripartite Lease.

In a bipartite lease, there are two parties to the lease agreement; one is the lessor, and the other is the lessee. Whereas in the case of a tripartite lease agreement, there are three parties to the agreement, one is the supplier of the equipment; the other is the lessor, and the third one is the lessee.

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