Finance Leasing Manual - FLM1.30

How does the finance lessee benefit?

In the basic finance lease case all the economic risks and rewards of ownership fall to the finance lessee although, as a matter of law, it is the lessor who owns the asset. The terms of the lease give all the rights of use of the asset to the lessee in return for the rental payments. If the asset is no good it is the lessee who suffers - it still has to pay all the rentals. Equally, if the asset is a great success and is worth a lot more than expected when the 'loan' has all been repaid, it is also the lessee who reaps the benefit. This is because finance leases usually contain provisions which ensure that the lessee can either:

• continue to use the asset after the 'loan' has been repaid and all the 'interest' has been paid; or

• require the lessor to sell the asset and pay most of the proceeds (after clearing the 'capital' and 'interest' debt) to him (the lessee) by way of a rental rebate.