BLM00055 - Introduction: Leasing: Operating leases - examples

A typical type of operating lease is one on moveable plant with the lessor taking the residual risk (for example a 5 year lease on a commercial vehicle with an expected useful life of 10 years). Other examples of typical operating leases include

• the hire of tools or machinery for a few days to DIY enthusiasts
• the hire of a car for a couple of weeks to a holiday maker
• the hire (‘charter’ in nautical or aeronautical language) of ships or aircraft for several years (where the asset has a useful life far longer than the hire period)
• ordinary leases of real property for many years (again where the asset has a useful life far longer than the hire period).

In all these cases one occasion of hire won’t pay back the lessor’s investment in the asset. The operating lessor has to hire the asset successively to more than one lessee, or sell the asset at the end of the lease, to make money.

BLM00060 and BLM00065 describe operating leases that are used as a form of finance.