Finance Leasing Manual - FLM11.31

Termination adjustments

A finance lease will normally contain provisions whereby, when the lease comes to an end, the lessee receives a rental rebate (or sometimes pays a further sum) by reference to the value of the asset at that point. This reflects the fact that under the lease the risks and rewards of ownership of the asset (though not the legal title) substantially lie with the lessee.

The economics of a finance lease are explained at FLM1.03 onwards. The risks and rewards of ownership of the leased asset rest with the lessee. If the asset is sold the benefits of ownership are largely enjoyed by the lessee; likewise the obligations of ownership. But as the asset belongs to the lessor it is the lessor who, in the first instance, is entitled to the sale proceeds (although in practice the lessee may conduct the sale negotiations as the lessor's agent).