Page 176 - DMGT512_FINANCIAL_INSTITUTIONS_AND_SERVICES
P. 176

Unit 11: Leasing




          Lease Documentation and Agreement                                                     Notes

          A lease transaction involves a lot of formalities and various documents. The lease agreements
          have to be properly documented to formalize the deal between the parties and to bind them.
          Documentation is necessary to overcome any  sort of  confusion in  future. It  is also  legally
          required, since it involves payment of stamp duty. Without proper documentation, it will be
          very difficult to prove your claim in competent court, in case of any dispute.
          The essential requirements of documentation of lease agreements are that the person(s) executing
          the document should have the legal capacity to do so; the documents should be in prescribed
          format; should be properly stamped, witnessed and the duly executed and stamped documents
          should be registered, where necessary with appropriate authority.

          Now, let us discuss in short, the formalities required.
          To, take a decision whether to finance a lease or lease an asset, the lessor/financier requires a lot
          of commercial document of the lessee e.g. balance sheet for last 3 years, MOA & AOA, copies of
          board resolution etc. After taking a decision to lease/finance the asset, a lease agreement  is
          created. The lease agreement specifies legal rights and obligations  of the  lessor and  lessee.
          Usually a maser lease agreement is signed which stipulates all the conditions that govern the
          lease. This sets out the qualitative terms in the main part of the document while the equipment
          details, credit limits, rental profile and other details are provided in the attached schedules.
          To simplify the process of executing and integrating the specific lease arrangement, the master
          lease agreement provides that:
          1.   The lease of equipment is governed by the provisions of the master lease agreement;
          2.   The details of the leased equipment shall be communicated to by the lessor to the lessee;
               and
          3.   The lessee's consent and confirm that the details to be provided by the lessor shall be final
               and  binding on the lessee.

          Clauses in Lease Agreement: There is no standard lease agreement, the contents differ from case
          to case. Yet a typical lease agreement shall contain following clauses:
          1.   Nature of lease: This clause specifies whether the lease is an operating lease, a financial
               lease or a leveraged lease. It also specifies that the lessor agrees to lease the equipment to
               the lessee and the lessee agrees to take on lease from the lessor subject to terms of the lease
               agreement, the leased asset.
          2.   Description of equipment.
          3.   Delivery and re-delivery of asset.

          4.   Lease period and lease rentals.
          5.   Uses of assets allowed.
          6.   Title: Identification and ownership of equipment.
          7.   Repairs and maintenance.

          8.   Alteration and improvements.
          9.   Possession: must detail - charges, liens and any other encumbrances.
          10.  Taxes and charges.
          11.  Indemnity clause.





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