Question

Respond to the following in a minimum of 175 words(PLEASE TYPE RESPONSE):

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.

Answer 1

A lease arrangement is basically an agreement between lessee and lessor under which a lessee enjoy the right to use the leased asset in return of which lessor enjoy the financial benefits as lease rent over the agreed period of time . Commonly three type of business leases are as follows:

1. The Gross Lease

2. The Net Lease

3. The Modified Gross Lease

1. The Gross Lease: It is a kind of lease arrangement in which the tenant pays a fixed large sum and the landlord is responsible for bearing all cost associated with the leased asset like property tax, insurance, maintenance and other ancillary expenses.

       Merit:

Single payments for tenants so they do not have to bother about day to day expenses of the asset.Landlord gets higher rent compared rent other lease arrangements.

2. The Net Lease: It is a kind of lease arrangement in which base rent is lower along with that the tenant is responsible for bearing other expenses associated with the leased asset for its operation and maintenance.

     Merit:

Tenants have to pay lower rent when compared to gross lease and more control over maintaining the space. Landlord gets relieved from variable cost associated with the property and gets shifted to the tenant.

3. The Modified Gross Lease: In this type of lease arrangement the tenant pays the lease rent and both the tenant and landlord are responsible for paying the expenses associated with the asset as per the agreement.          

     Merit:

Landlord enjoys some control over the asset and also not to worry regarding its maintenance cost.Payment rates normally don’t vary. Tenants gets more control over the asset.