In: Accounting
Respond to the following in a minimum of 175 words:
A lease is an arrangement under which a lessor agrees to allow a lessee to control the use of identified property, plant, or equipment for a stated time period in exchange for 1 or more payments. There are several types of lease designations, and they differ if an entity is the lessee or the lessor. For a lessee, a lease can be designated as either a finance lease or an operating lease.
Discuss 3 different types of business leases and their merit.
As per your request i am answering typed one again
They are Three types of leases for business:
1.Gross Lease: Under this lease, the lessee
pays a huge sum of lease payment that typically covers the rent
payable during the period of time the lease and so the likely
property taxes payable thereon. However the sum doesn't cover
Utilities and insurance expenses, janitorial and other maintenance
expenses. Hence these expenses have to borne by the landlord.
Usually the lumpsum payment is a one-time single payment made at
the inception of the lease. Rarely the lessee may have to pay
towards compensating the inflation in costs during the lease
period. This type of lease is advantageous to the lessee as he can
concentrate his finances for other investments without any
unnecessary headaches of managing lease expenses.
2.Net Lease:The disadvantage of the above
method is that cannot match the rent paid with the services that he
enjoys. This leads to lack of transparency. Hence the concept of
Net Lease is developed. There are three types of Net lease:
Single Net
Lease: Under this type of agreement the lessee pays
for the base rent and the property taxes thereon. And the landlord
pays the utilities and insurance, janitorial and Maintenance
Services.
Double net lease
: Under this agreement, the lessee pays for the
base rent and property taxes as well as the utilities and insurance
expenses. Thus the landlord has to bear the cost of maintenance and
repair expenses only.
Triple net
leases: Under this agreement, the lessee bears the
expenses pertaining to be rent and property taxes, utilities and
insurance expenses, as well as all sorts of maintenance and repair
expenses. Hence this is similar to to gross lease with an exception
that the lessee can track the amounts paid with services he
received.
Thus net lease is advantageous to landlord as they transfer the
utilities and insurance expenses, janitorial and other maintenance
expenses to the lessee.
3. Modified Gross Lease: Under this agreement, the lessee pays a huge sum towards rent and property taxes at inception of the lease. In addition to this, he will have to pay the utilities and insurance expenses, janitorial and other maintenance expenses periodically. Thus landlord can cover all expenses he incurs towards asset leased and lessee can keep track of expenses with benefits received.
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