Lessor

In which types of transactions does a Lessor operate?

A Lessor - also known as a Finance lessor or Bailor- is a bank, a specialized financial institution, or sometimes an equipment manufacturer that provides an asset to a business (the Lessee) through a leasing or finance lease agreement.

The leasing model applies to a wide variety of assets, including:

  • office equipment (e.g., printers, photocopiers);
  • industrial machinery and production equipment;
  • transportation assets (cars, trucks, trains, aircraft, vessels);
  • real estate or commercial buildings.

The Lessee is typically a company or an investor seeking an alternative financing solution to acquire equipment or real estate without making an immediate capital outlay.


How does a leasing transaction work?

1. Acquisition of the asset by the Lessor

The Lessor purchases the asset from the supplier or manufacturer. The acquisition is financed either:

  • through the Lessor’s own resources (banks, finance companies);
  • or via borrowing (often the case for manufacturers offering their own leasing solutions).

2. Leasing the asset to the Lessee

The Lessor leases the asset under a finance lease or leasing contract with a multi year duration, depending on the asset’s economic life.
Lease payments typically cover:

  • the cost of purchasing the asset;
  • the financing costs incurred by the Lessor;
  • the Lessor’s margin.

3. Responsibilities during the contract

Throughout the leasing period:

  • the asset remains the property of the Lessor;
  • the Lessee is responsible for maintaining and servicing the asset;
  • the Lessor must be able to recover the asset in good working condition (normal wear and tear excluded).

4. Options at the end of the contract

At contract expiry, the Lessee may:

  1. extend the lease.
  2. return the asset to the Lessor.
  3. purchase the asset at a pre agreed residual value defined at the start of the contract.


What are the advantages of a leasing transaction?

For the Lessor

  • The Lessor retains ownership of the asset, which reduces credit risk since the asset can be repossessed and resold in case of Lessee default.

For the Lessee

  • Alternative source of financing, without mobilizing large upfront capital.
  • No additional collateral required: the asset itself acts as the guarantee.
  • Flexibility in asset management, including: 
    • returning the asset at the end of the contract;
    • upgrading or replacing equipment more easily;
    • integrating services such as maintenance or repairs (common for vehicle fleets or industrial equipment).
  • Cashflow optimization: leasing spreads the cost of the asset over its useful life and preserves cash for other investments.