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Leasing is a process by which a firm can obtain the use of a certain fixed assets for
which it must pay a series of contractual, periodic, tax deductible payments. The
lessee is the receiver of the services or the assets under the lease contract and the
lessor is the owner of the assets. The relationship between the tenant and the landlord
is called a tenancy, and can be for a fixed or an indefinite period of time (called the
term of the lease). The consideration for the lease is called rent. A gross lease is when
the tenant pays a flat rental amount and the landlord pays for all property charges
regularly incurred by the ownership

Under normal circumstances, an owner of property is at liberty to do what they want

with their property, including destroys it or hand over possession of the property to a
tenant. However, if the owner has surrendered possession to another (ie the tenant)
then any interference with the quiet enjoyment of the property by the tenant in lawful
possession is unlawful.

Similar principles apply to real property as well as to personal property, though the
terminology would be different. Similar principles apply to sub-leasing, that is the
leasing by a tenant in possession to a sub-tenant. The right to sub-lease can be
expressly prohibited by the main lease.

Why leasing?
1. Leasing is the quickest means of obtaining equipment finance without lengthy
and time consuming procedures.
2. Leasing allows conservation of working capital that can be utilized for other
productive business purposes.
3. Fixed and variable rental payments assist in budgeting and ease cash flow.
4. Hedges against inflation as rental payments are made out of future earnings.
5. Lease rentals paid are allowed to be charged as a tax deductible expense in the
profit and loss statement of the lessee.
6. Leasing is acceptable within the Islamic modes of financing as rental
payments are made and interest is not involved.
7. Simplified documentation and personalized service.
8. Lease period can be tailored to match the practical useful life of the
9. Up to 90% financing for qualified applicants.

Who can lease?

1. Sole proprietorship concerns.
2. Partnership firms.
3. Private Limited Companies
4. Listed and unlisted local and multinational joint stock companies
5. Liaison offices of multinationals
Which industries/business sectors use leasing?
1. Manufacturing concerns
2. Services
3. Construction industry
4. Distributors/Traders etc.
5. Self employed professionals
6. Transport
7. Printing and packaging
8. Information Technology

What equipment can be leased?

1. Plant and machinery

2. Construction and heavy equipment
3. Medical equipment
4. Computers and IT related equipment
5. Office equipment
6. Commercial and private vehicles


With the development of Pakistan's economy during the past decade and the
privatization, deregulation and other industrial policies of the Government of
Pakistan, the economy received a boost after a prolonged period of sluggish economic
activity over the '70s and '80s.

The first leasing company was established in 1985. The

growth of the leasing industry in Pakistan initially
lacked momentum due mainly to a general lack of
awareness regarding its nature and benefits. From 1985
to 1997, 32 leasing companies were incorporated with
the minimum capital of Rs. 100 million. The minimum
capital requirement was raised to Rs. 200.00 million by
June 2000. This lead to mergers and acquisitions,
thereby the number of leasing companies is reduced to
27. In addition Nine leasing Modarabas & 3 Investment
Banks are actively involved in leasing business. In the mid-nineties annual average
growth was in the range of 30 - 35 percent. The real growth in the leasing came in the
period 1992 - 95, when over 20 leasing companies were set up. In October 1995,
leasing companies' paid-up capital was Rs.7.572 billion, with market capitalization of
Rs.6.0 billion as on 30-06-2002.

Leasing is not a very old phenomenon in Pakistan, but has gained acceptance very
rapidly. The reasons are: growing awareness, ease in obtaining the facility compared
to conventional forms of financing (bank loans), inherent tax benefits, simple
procedure and flexibility to cater to the needs of the customer. Profit is earned through
the use of the asset, not the ownership. In leasing, the ownership is vested in the
leasing company and in return for rental payments, the 'lessee' has virtually
unrestricted use of the asset. Leasing is a medium to long term hire of assets. It
effectively increases a company's total availability of capital and leaves other sources
of funds available for more profitable usage.

The leasing sector in general has experienced commendable growth over the years
and has adequately proved to be an alternative source of finance. In case of an
expected economic revival, the overall Leasing Sector is likely to regain its initial
momentum particularly in the backdrop of Islamization of the economy effective
fiscal year 2002 - 2003 due to its inherent potential of being in close conformity to
one of the permissible modes of financing under Shariah. However, in order to
improve the near future demand prospects of Leasing Sector in particular, the leasing
companies need to develop innovative products along with encouraging leasing of
plant, machinery and equipment relating to priority sectors of the economy including
energy (CNG), IT (Computer hardware, software and accessories), textiles,
engineering etc subject to their intrinsic value. Agriculture sector is receiving special
focus. The presence of commercial banks and DFI's in the lease market has impacted
the leasing company's margin, but their capability of offering large ticket leasing has
enhanced the acceptability of leasing options.



2006 2007 2008

No. of Companies 29 27 25
Paid up Captial 12,185 13,182 17,448
Reserves 8,599 7,877 8,477
Total Equity 20,784 21,059 25,925
Investment in Lease Finance 75,151 72,908 71,597
Investments 21,687 22,817 29,896
Borrowings 78,882 83,196 90,792
Revenues 14,665 15,028 16,907
Operating Expenditure 5,009 5,822 5,779
Financial Charges 7,419 8,467 8,954
Taxation 193 91 411
Net Profit 2,044 636 2,094
Cash Divident 900 961 884
Total Assets 123,501 128,315 136,569

There are different kinds of lease arrangement. It makes sense to look at each one to
see which is best suited to your business, your particular circumstances and the asset
that you are acquiring.

The two main types of leasing are:

1. Finance lease.
2. Operating lease.


A finance lease is a full-payout, noncancellable agreement, in which the lessee is

responsible for maintenance, taxes and insurance.

Finance leases are most attractive in cases where the lessee wants the tax benefits of
ownership or expects the equipment's residual value to be high. These leases are
structured as equipment financing agreements with residuals up to 10 percent. The
lessee purchases the equipment upon lease termination at a pre-agreed amount. The
term of a finance lease tends to be longer, nearly covering the useful life of the


The cornerstone of ORIX business activities, the finance lease, offers one of the most
cost effective tailor made financial packages available in the market. ORIX Corporate
Lease Division offers lease financing options on both medium and long terms basis
for plant and machinery, vehicles and office automation products. We approach each
prospective lessee with individualized care and provide personal service to structure a
lease according to the lessee’s requirements.

The finance lease is founded on the truism that profits are earned through usage and
not through the ownership of an asset. It was this very concept that fuelled modern
lease financing as an alternate method of financing. The corporate lease at ORIX is
designed to give your business an opportunity to acquire movable and immovable
assets without putting a strain on your cash flows.

How does it work

All you have to do is identify an asset that you need for your business. Subsequent to
a feasibility study of your business, ORIX will purchase the asset(s) and provide you
with unlimited usage of the asset for a predetermined repayment period structured
according to agreed terms and conditions. An innovative offshoot of the finance lease
allows you to release cash tied up in recently purchased assets through the ‘sale and
lease back’ transaction, which increases the working capital available to your

ORIX has provided comprehensive leasing services to companies across the country
for more than two decades. The company offers a personal touch and customized
approach placing all its patrons on even footing. ORIX provides a wide range of
assets together with attractive and customized repayment terms to all. This sense of
fair play has been one of the foremost reasons behind ORIX’s success.
Our leases are priced competitively with a payment schedule designed specifically for
you. We will give you the choices, convenience and value that you deserve.

Salient Features

• ORIX Corporate Division offers leasing facility for plants and machinery,
vehicles and office products.
• The following are the flexible leasing options tailored to suit the lessees needs:
o Fixed and variable rate (KIBOR based) leases
o Step up and step down leases
o Leases with grace period
o Sale and lease back
• ORIX will have the economic ownership of the asset whereas the lessee will
avail the economic usage.
• Leasing leads to tax savings as lease rentals are allowed to be charged as tax
deductible expense in the profit and loss statement of the lessee.
• Leasing guards against equipment obsolescence.
• Leasing is a hedge against inflation.
• Leasing is acceptable within the Islamic modes of financing as fixed rental
payments are made.
• ORIX branch network makes leasing available throughout Pakistan with
growing presence in all major cities.

An operating lease is particularly attractive to companies that continually update or

replace equipment and want to use equipment without ownership, but also want to
return equipment at lease-end and avoid technological obsolescence. An operating
lease usually results in the lowest payment of any financing alternative and is an
excellent strategy for bypassing capital budgeting restraints. It typically qualifies for
off-balance sheet treatment and can result in improved Return On Asset (ROA) due to
a lower asset base. It can also result in higher reported earnings in the early years of
the lease.

ORIX leasing company:

ORIX Operating Lease Division offers the facility of renting the equipment for the
duration it is needed. The operating lease solutions provide full use of an asset while
avoid many risks associated with the ownership of equipment such as depreciation,
obsolescence and asset disposal. An operating lease acts as a true hiring arrangement
where the rental is treated as an expense and allows equipment off balance sheet for
accounting purposes.
Salient Features

• ORIX provides equipment on short and long term rentals.

• The equipments are rented along with entire range of services such as
managing operations, maintenance, repair, replacement, up gradation and
logistics through our experienced asset manager.
• Lease payments are tax deductible thus reducing the rental cost of equipment.
• ORIX has the flexibility to adapt its products according to customer
requirements by offering a tailor-made solution.

Benefits of Operating Lease

• Access to the most modern equipment and technology without the associated
cost of ownership.
• Hedge against equipment obsolescence.
• Hassle-free delivery and start-up of equipment.
• No worry about disposing of equipment.
• Flexible rental payment arrangement.
• Preserve customer credit lines.
• Enhanced ROA & ROE ratios as operating lease is not reflected on balance
How Operating Lease Works


• Generators
• Agricultural Equipment
• Vehicle
• Communication Equipment
• Used Rental Equipment also available for sale.



OPERATING LEASE asset are very difficult in nature from finance lease
assets as the risks and rewards of ownership are not transferred to the lessee.
Therefore the accounting treatment is also very difficult.

• An asset is not recognized in the balance sheet.

• Rentals under operating leases are charged to the income statement on
the straight line basis over the term of lease, unless another systematic
and rational basis is more appropriate.
• Any difference between amounts charged and amounts paid will be
prepayments or accruals.


Balance sheet: Obligation under operating lease:

For non-cancellable operating leases with term of more than one year ,
commitments should be disclosed in summary form, giving the amounts and
periods in which the payments will become due.

The detailed disclosure requirements for the lessees for the operating lease are
the total of the future minimum lease payments under non-cancellable
operating leases for each of the following periods:
• Not later than one year.
• Later than one year and not later than five years.
• Later than five years.



At the commencement of the lease term, lessees shall recognise finance leases
as assets and liabilities in their balance sheets at amounts equal to the fair
value of the leased property or, if lower, the present value of the minimum
lease payments, each determined at the inception of the lease.
The discount rate to be used in calculating the present value of the minimum
lease payments is the interest rate implicit in the lease, if this is practicable to
determine; if not, the lessee’s incremental borrowing rate shall be used. Any
initial direct costs of the lessee are added to the amount recognized as an asset.

Minimum lease payments shall be apportioned between the finance charge and
the reduction of the outstanding liability. The finance charge shall be allocated
to each period during the lease term so as to produce a constant periodic rate
of interest on the remaining balance of the liability. Contingent rents shall be
charged as expenses in the periods in which they are incurred.


A finance lease gives rise to depreciation expense for depreciable assets as

well as finance expense for each accounting period. The depreciation policy
for depreciable leased assets shall be consistent with that for depreciable assets
that are owned, and the depreciation recognised shall be calculated in
accordance with IAS 16 Property, Plant and Equipment and IAS 38
Intangible Assets. If there is no reasonable certainty that the lessee will obtain
ownership by the end of the lease term, the asset shall be fully depreciated
over the shorter of the lease term and its useful life.


IAS 17 requires the following disclosures by the lessees for the finance leases:

• For each class of asset, the net carrying amount at the balance sheet
• Liability for finance leases split between current liabilities and non-
current liabilities.
• Depreciation charge in the income statement.
• Finance charges in income statement.


A sale and leaseback transaction involves the sale of an asset and the leasing back of
the same asset. The lease payment and the sale price are usually interdependent
because they are negotiated as a package. The accounting treatment of a sale and
leaseback transaction depends upon the type of lease involved.


Sale and Finance lease back

• No sale is recorded.
• The forwarded funds are treated as a loan secured on the leased

Sale and operating leaseback:

• A sale is normally recorded.


By this agreement made at ___________________________________, PA on the

__________ day of _______________________, 20____, the Landlord ___________
_______________________________ and the Tenant _________________________
_______________________ agree as follows:


The landlord hereby leases to Tenant for the term of this agreement

a. the property located at:

___________ __________________________ __________________________
No. Street Name Unit No.

City State Zip


b. the following furniture and appliances on that property:



The term of this lease is for ____________, beginning on ____________, and ending
on __________. At the expiration of said term, the lease will automatically be
renewed for a period of one month unless either party notifies the other of its intention
to terminate the lease at least one month before its expiration date.


At the expiration of said term, the lease will expire unless the tenant gives a written
notice at least 15 days before the termination date of the lease. Thereafter, the lease
will automatically be renewed for periods of one month until either party notifies the
other of its intention to terminate the lease. The notice of termination will be in
writing and will be effective on the next rental date no less than 30 days after the date
of the notice.


Tenant agrees to pay rent in the amount of __________ per month, each payment due
on the _________ day of each month and to be made at:
Address City State Zip

Landlord agrees to provide the utilities and services indicated:

__________ electricity __________ gas __________ water
__________ garbage collection __________ snow removal __________ other


Tenant has paid a deposit of $__________ of which Landlord acknowledges receipt.

Upon regaining possession of the property, Landlord shall refund to Tenant the total
amount of the deposit less any damages to the property, normal wear and tear
expected, and less any unpaid rent.


Forwarding Address—Tenant shall provide Landlord with a forwarding address at

which the Landlord can send him/her the deposit refund.

Landlord shall return the entire deposit to Tenant within 15 days after retaking
possession; or shall return so much of the deposit as exceeds any damages done to the
property during the Tenant’s residence, normal wear and tear expected, and any
unpaid rent. If the Landlord returns any amount less than the full deposit, he/she shall
also provide a written itemized list of damages and charges.

Tenant maintains the right to sue Landlord for any portion of the deposit not returned
to him/her which the tenant believes he/she is entitled.


The Tenant is provided with an Inventory Move-In Checklist attached to this lease.
The Tenant shall note the conditions of each item on the checklist and return a copy to
the Landlord within 10 days after taking possessions. If the Landlord objects to
inclusions of any item, he/she shall notify the Tenant in writing within 10 days. The
Tenant and Landlord shall note the condition of each item on the checklist after the
Tenant returns possession to the Landlord and shall give a copy to the other party.

The Landlord may not retain any portion of the Security Deposit for damages noted in
the Move-Out Checklist to which the Landlord did not object.


A. Tenant shall not sublease nor assign the premises without the written consent of
the Landlord (but this consent shall not be withheld unreasonably).

B. The Landlord may not enter the premises without having given tenant at least 24
hours notice, except in case of emergency. Landlord may enter to inspect, repair, or
show the premises to prospective buyers or tenants if notice is given.

C. Tenant agrees to occupy the premises and shall keep the same good condition, and
shall not make any alternations thereon without the written consent of the landlord.
D. Landlord agrees to regularly maintain the building and grounds in a clean, orderly,
and neat manner. Landlord further agrees not to maintain a public nuisance and not to
conduct business or commercial activities on the premises.
E. Tenant agrees not to use the premises in such a manner as to disturb the peace and
quiet of other tenants in the building. Tenant further agrees not to maintain a public
nuisance and not to conduct business or commercial activities on the premises.

F. Tenant shall, upon termination of this Agreement, vacate and return the swelling in
the same condition that it was received, less reasonable wear and tear, and other
damages beyond the Tenant’s control.

G. Any alternations to this Agreement shall be in writing and signed by all parties.
We, the under-signed, agree to this Lease:

_________________________ _________________________
Signature Signature
_________________________ _________________________
Typed Name Typed Name
_________________________ _________________________
Address Address
_________________________ _________________________
Signature Signature
_________________________ _________________________
Typed Name Typed Name
_________________________ _________________________
Address Address