Operating Leases
An Operating Lease is a lease agreement with a residual value, where the residual is underwritten either by the lender or an independant third party - this could be a specialist residual value provider or the manufacturer/supplier/dealer.
Quite often there will be usage stipulations and return conditions.
At present, lenders are not keen to underwrite a residual value internally and the providers of guaranteed buybacks are few and far between so generally it falls on manufacturers or dealers to offer a buyback.
This is an off balance sheet type agreement. Rentals are subject to VAT. At the end of the agreement the party who has guaranteed to buyback at a predetermined price will either take possession or agree an extention contract.
Quite often the underlying rates and timid residual value setting will actually make these types of agreement undworkable. Sometimes a simple finance lease where you get some title at the end is a more cost effective proposition, where you can make enjoy residual profits not a third party.
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