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Considering an operating lease?
Lease machinery, equipment and fit-outs from ₹25 lakh to ₹100 crore.
Check eligibilityWhat a lessee is
The lessee is the customer in a lease. It chooses the equipment, uses it in its own operations and takes on the duties set out in the lease documents. Four of them matter most.
1
Use: operate the asset for the agreed purpose, at the agreed location and within the terms of the lease.
2
Rentals: pay the fixed rental on each due date for the full tenure, whether or not the asset is busy.
3
Care: keep the asset serviced, in good working order and insured as the agreement requires, often with the lessor named on the policy.
4
Return: at the end of the term, hand the asset back in the agreed condition, allowing for fair wear and tear, unless it re-rents or buys it.
What the lessee does not carry is ownership. Title stays with the lessor, and in an operating lease so does the risk of what the asset is worth when the lease ends.
When you are the lessee
A business is the lessee whenever it pays to use an asset someone else owns. Its position differs from an owner's in a few clear ways.
WHAT CHANGES
Lessee
Owner (bought outright)
Who owns the asset
The lessor
The business
Upfront cash
Often little: rentals spread the cost
Full price, or a margin if borrowed
Value at end of term
Lessor's risk in an operating lease
Owner's risk: resale value may fall
At the end
Return, re-rent or buy
Keep, sell or scrap
How it works for the lessee
With Capexo, the lessee chooses the equipment and supplier and agrees the price, then signs a lease mandate and a master rental agreement. Once the facility is sanctioned, it confirms delivery and signs a rental schedule, and the lessor pays the supplier.
During the term.
The lessee pays rentals, uses the asset in its business, services it and keeps it insured. Breaching these terms can be an event of default under the agreement.
At the end of the term.
The lessee returns the asset in the agreed condition, re-rents it for a further period or buys it, on the terms set out in the agreement.
How a lessee accounts for a lease depends on whether it reports under Ind AS or Indian GAAP.
Where it shows up
A diagnostics chain leasing imaging equipment
ILLUSTRATIVE
A diagnostics chain needs ₹4 crore of imaging equipment for two new centres. Instead of paying ₹4 crore upfront, it leases the equipment for 60 months as the lessee. It runs the scanners, pays the monthly rental, keeps the maintenance contract with the manufacturer and insures the equipment with the lessor named on the policy. At the end of the term it can return the scanners in the agreed condition, re-rent them or buy them. The cash it did not pay upfront stays available for staff, launch costs and working capital.