A lease is a contract outlining the terms under which one party agrees to rent property owned by another party. It guarantees the lessee, also known as the tenant, use of an asset and guarantees the lessor, the property owner or landlord, regular payments from the lessee for a specified number of months or years. Leasing in Nigeria has become popular in recent times due largely to the impact of industrialization and proliferation of manufacturing concerns.
As a result of the problems associated with establishing companies with huge asset requirements, coupled with the substantial capital often tied up in providing infrastructural needs like electricity, water, roads and communications, many prudent organizations have taken to leasing facilities provided by merchant banks and finance companies. This approach tends to reduce the strain on the initial funding.
Leases are contracts whereby one party (the lessee) hires equipment or services from another party (the lessor) in a way that the lessee acquires the use of the asset without purchasing it.
There can be two categories of leases:
- Financial leases in which the lessee agrees to make a series of payments for the use of equipment under a contract which cannot be cancelled by either side during the operating life of the equipment.
- Operating leases, in which the contract is for a period shorter than the operating life of the asset and either party may cancel the contract on suitable notice.
It is advisable that a banker dealing with a company enjoying leasing facilities should seek information on all contractual commitments entered into by the company.
The advantage of leasing lie largely in the special tax position of the lessor an /or lessee. A lessee with losses and or capital allowances brought forward which exceed taxable profits will obtain no immediate relief for capital expenditure on purchasing an asset. A lessor may be expected to take account of tax reliefs which will in all probability be immediately available to him in fixing the rentals.