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Considering an operating lease?
Lease machinery, equipment and fit-outs from ₹25 lakh to ₹100 crore.
Check eligibilityWhat lease tenure covers
Tenure looks like a single number, but the agreement defines it through four parts.
1
Start date: usually when the asset is delivered and accepted and the rental schedule is signed.
2
Fixed period: the months for which rentals are payable and the lease cannot normally be cancelled.
3
Extensions: any option to re-rent the asset for a further period at the end.
4
Early exit: what ending the lease early costs, usually the remaining rentals or an agreed termination amount.
In an operating lease the tenure is shorter than the asset's useful life, so the asset still has value when it goes back to the lessor. That expected value is what keeps rentals lower than full repayment of the cost.
When to choose a shorter tenure
The trade-off is between a higher monthly rental with more flexibility and a lower rental for a longer commitment.
WHAT CHANGES
Shorter tenure
Longer tenure
Monthly rental
Higher: cost recovered in fewer months
Lower, but usually more paid in total
Suits assets that
Age fast: IT, medical imaging
Last long: plant, racking, fit-outs
Residual value at the end
Higher, so more left with the lessor
Lower, nearer the end of useful life
Flexibility
Refresh or exit sooner
Committed for longer
How tenure is set
Start from how long you will need the asset and how long it stays productive, then check that the rental fits your cash flow. The lessor will also look at how fast the asset loses value and whether it can be re-leased or sold at the end.
Lease term under Ind AS 116.
The fixed period, plus extension periods you are reasonably certain to use and periods after an exit option you are reasonably certain not to use. It sizes the lease liability.
Useful life.
A tenure close to the asset's whole economic life is an indicator of a finance lease, so check classification when you choose a long tenure.
Pick a tenure you expect to complete: early exit usually costs most of the remaining rentals.
Where it shows up
Choosing a tenure for a CT scanner
ILLUSTRATIVE
A diagnostics chain wants a ₹1.2 crore CT scanner with a useful life of about eight years. A lessor quotes ₹2.6 lakh a month for 36 months, a total of ₹93.6 lakh, or ₹2.2 lakh a month for 60 months, a total of ₹1.32 crore. The 3-year rental is higher each month but the total is lower, because the lessor funds the scanner for less time and expects it to be worth more when it comes back. The chain expects imaging technology to move on, so it picks 36 months and plans to upgrade at the end. A centre focused on steady volumes might prefer the lower 5-year rental.