Operating Lease

Also read: Hire Purchase | Lease Purchase | Finance Lease | Raising Capital

The difference between an operating lease and a financial lease is that the initial period of rentals will not substantially cover the capital cost and the hire charges.

As an example a lease for a printing press costs £400,000 this may include an excess value at the end of the initial period of £150,000. Therefore the initial rentals will be based on £250,000 and not the capital cost of £400,000.

It is rare for an operating lease to have a secondary rental period as the asset will need to be sold on at the end of the initial period. In some cases the lender may arrange a finance lease for you to ‘wash out ‘the remainder.

With an Operating Lease you can find the origin of the supplier but in most cases you will find that the leasing company will be able to find the asset for you cheaper. Documentation fees and an initial multiple of rentals will have to be paid. The rentals will attract VAT which can be recovered subject to appropriate eligibility. The finance company owns the asset so therefore you do not need to pay the VAT on the purchase at the onset.

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