Unformatted text preview: to re-lease
assets at the expiration of the
Provisions frequently included in
both operating and financial
leases that allow the lessee to
purchase the leased asset at
maturity, typically for a prespecified price. 3. Leasing arrangements that include one or more third-party lenders are leveraged leases. Under a leveraged lease, the lessor acts as an equity participant,
supplying only about 20 percent of the cost of the asset, and a lender supplies
the balance. Leveraged leases have become especially popular in structuring
leases of very expensive assets.
A lease agreement normally specifies whether the lessee is responsible for
maintenance of the leased assets. Operating leases normally include maintenance
clauses requiring the lessor to maintain the assets and to make insurance and tax
payments. Financial leases nearly always require the lessee to pay maintenance
and other costs.
The lessee is usually given the option to renew a lease at its expiration.
Renewal options, which grant lessees the right to re-lease assets at expiration, are
especially common in operating leases, because their term is generally...
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