Sunday, October 4, 2009

The Lease Contract

The key items in the lease contract normally include the term of the lease, provisions for its cancellation, lease payment amounts and dates, renewal features, purchase clause, maintenance and associated cost provisions, and other provision specified in the lease negotiation process. As we indicated in the preceding discussion, many provisions are optional. A lease can be cancelable or non-cancelable, but if cancellation is permitted the penalties must be clearly specified. The lease may be renewable. If it is, the renewal procedures and costs should be specified. The lease agreement may provide for the purchase of the leased assets during the contract period or at the termination of the lease. The cost and conditions of the purchase must be clearly specified. In the case of operating leases, it is likely tat maintenance costs, taxes, and insurance will be paid by the lessor. In the case of a financial lease these costs will generally be borne by the lessee. The bearer of these costs must be specified in the lease agreement.
The leased assets, the terms of the agreement, the lease payment, and the payment interval must be clearly specified in all lease agreements. The consequences of missing a payment or violating any other lease provisions must also be clearly stated in the contract. The consequences of violation of the agreement by the lessor must also be specified. Once the lease contract has been drawn up and agreed to by lessee and lessor, the notarized signatures of these parties bind them to the terms of the contract.

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