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Definition: Lease Incentives
A lease is a legal document (contract/agreement) which specifies the terms and conditions under which one party (lessor) rents their assets to another party (lessee). The assets maybe anything like a car, machinery, real estate etc. The document gives the right to exclusive possession of the asset to the lessee, given that the lessee pays the specified amount at the specified intervals, fulfilling the other agreed-upon conditions.
For example a property maybe leased for a year, given that the lessee pays Rs. 12,000 at the beginning of every month, on the condition that the person may not keep any pets.
There are two types of lease:
1. Capital Lease
2. Operating Lease
In case of Capital Lease, the lessee acquires the benefits and risks associated with the asset, whereas in case of Operating Lease, the benefits and risks are owned by the lessor. In some cases, a lease maybe given as a loan against an asset.
Lease incentives are incentives given to the lessee to sign a lease. For example, when leasing a car, the lessor may provide inbuilt accessories, air freshener, cushions etc. Another example would be to lease a house with the lessee not having to pay the rent of the first month.