It stands for full payout lease; another term for capital lease; a lease in which a lessor finances the leased asset while the other rights of ownership are transferred to a lessee. It constitutes a long-term agreement where the lessor agrees to transfer the ownership of an asset the lessee at the end of the lease term. The lessee can opt for purchasing the leased asset at a bargain price (below its market value) at the end of the lease term.
By nature, a full-payout lease is not cancellable (non-cancellable lease). And in case of cancellation, the lessee would have to assume all losses arising as a result of premature termination. At the end of the term, the asset transfers to the lessee (with all claims on finance and depreciation charges associated with the asset).
Full-payout leases can be used for multiple types of assets including land, buildings, ships, aircraft, heavy machinery, etc.
A full-payout lease is also known as a finance lease.
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