A business agreement under which the lessor purchases an asset selected by the lessee, the object of lease, in order to transfer its rights of use to the lessee in exchange for payment. In case of closed-end leasing, the object of the lease becomes the property of the lessee at the end of the lease term, upon payment of the last lease payment. In case of an open-end lease, the lessee has the option to name the prospective owner. The asset is kept on the lessee’s books throughout the duration of the finance lease, allowing the lessee to write off depreciation - however, the lessor remains the owner of the asset.
A lease is an asset-based financing agreement governed by civil law. It is a transaction where two actors, the lessor and the lessee, conclude a fixed-term agreement regarding the use of one or more objects of lease.
The lease is governed by the lease agreement, in accordance with which the lessor is required to procure or create the rights of use to the movable or immovable thing set out in the agreement as commissioned and under the conditions stipulated by the lessee, for the purpose of transferring those rights of use as asset-based financing to the lessee for the fixed term set out in the agreement (lease term). The lessee is required to take delivery of the object of lease and make (regular) payments.
The lease payment is the regular (monthly/quarterly) payment due from the lessee to the lessor. It consists of two fundamental parts: the principal and interest components. According to Act CXII of 1996 on Credit Institutions and Financial Enterprises, the principal component is equal to the contracted price of the object of lease, while the interest component is set out in the agreement concluded between the parties. While in the case of loans, we usually speak of payments or installments, in case of lease agreements, we use the phrase “lease payment”.
The lessee is the actor who concludes a lease agreement for the object of lease. The lessee may be a private person as well as a company.
The lessor is a financial corporation which concludes a lease agreement for the asset - the object of lease - selected by the lessee. In Hungary, only corporations with an operating license issued by the Hungarian Financial Supervisory Authority may act as lessors.
The object of lease is the movable or immovable thing or intellectual property right, concession, license or similar right selected by the lessee to be purchased by the lessor from a vendor in accordance with the lease agreement.
In case of an operating lease, the owner transfers the asset it owns to the buyer for a fixed term in exchange for payment. The owner may define limits to use, but the risks and costs of operation are shared by the lessor and the lessee. The lessor may also undertake to provide additional services beside the lease itself. Upon the end of the fixed term defined in advance, the asset is returned to the owner, who may then re-lease it or sell it. The object of the lease is worth more to the lessor in case of an operating lease than it is under a finance lease, as in the former case, the object of lease is returned to the lessor after use.