Full Definition of Equipment Finance and Leasing Law

The legal scope of equipment leasing focuses on the commercial and financial activities and conditions under which an equipment owner permits the use of the equipment to another party in exchange for lease payments. Equipment leasing is a common opportunity for organizations, for leasing eliminates the need to invest large sums of capital in equipment.

The two primary types of leases are operating and long-term or "capital" leases. Operating leases are characterized by short-term, cancelable terms; the lessor bears the risk of obsolescence and enjoys such benefits as depreciation, including, if applicable, accelerated depreciation. These leases are generally preferable when the company needs the equipment for a short period of time. Under the usual terms of operating leases, a lessee can usually cancel the lease, assuming prior notice, without a major penalty. Long-term, "capital," non-cancelable leases, also known as full payout or financial leases, are sources of financing for assets the lessee company wants to acquire and use for longer periods of time. Most financial leases are "net" leases, meaning that the lessee is responsible for maintaining and insuring the asset and paying all property taxes, if applicable. Financial leases are often used by businesses for expensive capital equipment.