Leasing and finance
finance lease
A finance lease is a lease that works much like financing the purchase of an asset. W. P. Carey explains that leases are classified as finance when they have characteristics similar to financing a purchase. Under U.S. GAAP the lessee usually records the asset and a liability on its balance sheet.
Why it matters
A lease with an option to buy, or a term covering most of the container's life, may be a finance lease. Triton, for example, offers lease-purchase terms for customers who want to own containers at the end. A common mistake is to confuse the accounting label with the contract name. The label depends on the tests in the accounting rules, not on what the lessor calls it. Operators should talk with their accountant before they sign. Tax treatment is separate from accounting treatment. This is general information, not tax or accounting advice.
Read: Buying containers wholesale: A buyer's guide for operators
Definition source: wpcarey.com
Related terms
operating lease
An operating lease is a lease where the lessor lets the lessee use an asset for a set period, much like a typical rental. W. P. Carey describes it as a more traditional lease arrangement. It is the type of lease that does not meet the tests for a finance lease.
lease-to-own
Lease-to-own is a plan where a customer pays regular lease payments and may own the item at the end. The FTC says these plans let people take an item home while they pay over time, often under a contract with weekly or monthly payments. Total cost can be much higher than a cash price.
term lease
A term lease is a lease that runs for a fixed period. In container leasing it is often called a long-term lease. Triton describes long-term leasing as renting containers at a daily rate for a set term, with fleet costs fixed. At the end, the lease can be extended or the units returned.
depreciation
Depreciation is an annual income tax deduction that lets a business recover the cost of property over the time it uses the property. The IRS describes it as an allowance for wear and tear, deterioration or obsolescence. Containers, trailers and trucks used in a business are common examples.
residual value
Residual value is an estimate of what an asset will be worth at a future point, often near the end of a lease or its useful life. Excedr says it depends on condition, age, demand, service history, obsolescence, removal costs and the terms of the agreement.
master lease
A master lease is a framework lease between a container owner and a lessee. Triton says its master lease suits companies that scale a fleet up or down with demand and need flexibility to pick up and drop off units. Exact terms differ by lessor, so each contract needs a careful read.
For the industry
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