Finance Leasing Manual - FLM1.36

Rebates of rentals

A finance lease is a lease that transfers substantially all the risks and rewards of ownership of the asset to the lessee. At any time from the end of the primary period (and sometimes from an earlier point) the lessee is thereforegenerally entitled to require the lessor to sell the asset and pay the proceeds to the lessee by way of rental rebate.

The lessor is sometimes entitled to retain a small proportion, say 5 per cent, of the proceeds. In addition to this retention the lessor is also entitled to ensure that, if the need arises, it recoups its capital investment plus interest on the outlay either out of the sale proceeds or by way of a further 'termination rental'.

Where the asset is machinery or plant the parties must be careful to avoid any provision that gives the lessee the right to acquire the asset as Section 60 CAA 1990 will shift the title to capital allowances from lessor to lessee, see CA 2180 onwards.