Leasing - Tangible Personal Property

Tangible Personal Property

An owner can allow another the use of a vehicle (such as vehicle leasing of a car, a truck or an airliner) or a computer either for a fixed period of time or at will. This can be a simple leasing transaction, or it can be a transaction intended to allow the user the right to buy the item at some future time.

• In a simple lease (rental) of a car, the lessee pays the lessor a rental for the use of the car during the agreed period which may be a few days (e.g. for a holiday trip) or longer where it is more economic to pay for use rather than pay for the ownership of an asset of depreciating value. Normally, only the lessee will be allowed to use the vehicle and, in such a case, the lessee has possession and control. But, the lessor could be an employer who allows a third person the use of the car to visit clients.

• In a lease with the possibility of purchase, O could allow P to lease the car for a specified period of time. If all the rental payments are made in full, P will then be allowed to buy the car at the contractual purchase option price. In a consumer lease subject to the federal Consumer Leasing Act and the Truth in Lending Act, the purchase option price can not be a "bargain" purchase, that is, it cannot be less than the originally estimated fair market value. A "bargain" purchase creates an installment sale, to which the Truth in Lending Act (TILA) applies including the standardized disclosures, most importantly the Annual Percentage Rate (APR). Typically, the vehicle dealer or other personal property seller offers the leasing terms and contract of a third party finance company. Hence, O leases the vehicle to P, and upon execution of the contract simultaneously sells ownership of the car to F and assigns the lease contract to F. It is standard for the contractual terms to prohibit P from parting with possession or control of the car to another (if P does part with possession, this can be a theft of the car from F).

There are two principal types of leasing, depending upon the party taking the risk of the value of the vehicle (or other leased property) at lease end. In the U.S. this is called Closed-end leasing. In other jurisdictions, it is called hire purchase, lease purchase or finance leasing. These transactions are complicated. The most common problem arises when O makes specific representations as to the quality and reliability of the car to P during the initial negotiations. If what is said induces P to buy the car from O, those representations would usually be enforceable against O. But, in this transaction, O first sells the car to F who makes no representations to P. The laws vary from state to state on the extent to which P might be allowed a remedy if the car proves to be of poor quality.

To clarify the concept, the owner of tangible movables has the power to keep possession and only to transfer control. This may be for:

• short- or long-term storage (e.g. leaving a passport with hotel staff or depositing valuable property in a bank vault — a hotel or bank holding property is a bailee); or
• for delivery purposes (e.g. using a carrier to transport goods to a specific destination); or
• it may be a form of mortgage — a pawnshop holds a pledge over the goods deposited until the money lent is repaid.

Leasing is a common method by which airlines acquire their aircraft, usually from companies that specialize in the field of Commercial Aircraft Sales and Leasing. Aircraft leasing transactions are typically divided into finance leasing and operating leasing.

Leasing is also used for ships, in which case the agreement is structured as a bareboat charter.

Businesses often choose to lease rather than buy office equipment, including computers. Since office equipment depreciates rapidly, leasing can be more cost-efficient than ownership.

In addition, more and more unconventional items are becoming available for lease, such as handbags and luxury watches.