Page 233 - DCOM304_INDIAN_FINANCIAL_SYSTEM

Indian Financial System

Notes 4. Direct Lease: In direct lease, the lessee and the owner of the equipment are two different
entities. A direct lease can be of two types: Bipartite and Tripartite lease.
(a) Bipartite lease: There are only two parties in this lease transaction, namely
(i) Equipment supplier-cum-financier (lessor) and

(ii) Lessee: The lessor maintains the assets and if necessary, replace it with a
similar equipment in working condition.
(b) Tripartite lease: In such lease there are three different parties
(i) Equipment supplier
(ii) Lessor (financier) and

(iii) Lessee
In such leases sometimes the supplier ties up with financiers to provide financing to
lessee, as he himself is not in position to do so.
5. Single investor lease: This is a bipartite lease in which the lessor is solely responsible for
financing part. The funds arranged by the lessor (financier) have no recourse to the lessee.
6. Leveraged lease: This is a different kind of tripartite lease in which the lessor arranges
funds from another party linking the lease rentals with the arrangement of funds. In such
lease, the equipment is part financed by a third party (normally through debt) and a part
of lease rental is directly transferred to such lender towards the payment of interest and
installment of principal.
7. Domestic Lease: A lease transaction is classified as domestic if all the parties to such
agreement are domiciled in the same country.

8. International Lease: If the parties to a lease agreement domiciled in different countries, it
is known as international lease. This lease can be further classified as:
(i) Import lease: In an import lease, the lessor and the lessee are domiciled in the same
country, but the equipment supplier is located in a different country. The lessor
imports the assets and leases it to the lessee.
(ii) Cross border lease: When the lessor and lessee are domiciled in different countries,
it is known as cross border lease. The domicile of asset supplier is immaterial.

Notes The term of the lease may be fixed, periodic or of indefinite duration. If it is for a
specified period of time, the term ends automatically when the period expires, and no
notice needs to be given, in the absence of legal requirements.
The term's duration may be conditional, in which case it lasts until some specified event
occurs, such as the death of a specified individual. A periodic tenancy is one which is
renewed automatically, usually on a monthly or weekly basis. A tenancy at will lasts only
as long as the parties wish it to, and be terminated without penalty by either party.
It is common for a lease to be extended on a "holding over" basis, which normally converts
the tenancy to a periodic tenancy on a month by month basis.

11.2 Financial Aspect

Lease financing enables the lessee to have finance for huge investments in land, building, plant
and machinery etc., up to 100%, without requiring any immediate down payment.

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