Finance Leasing: An Introduction

Part One of a Two-Part Series

by Tom Budgett, Clifford Chance in Paris

The peoples of ancient Sumeria are thought to have devised the concept of equipment hire: a commercial relationship in which the owner of equipment allows another person to have possession and use of it for a rental payment. In modern times, this legal structure has been adapted to what is, in effect, a form of financing under which, generally for reasons associated with security or taxation treatment (or both), the provider of funds acquires title to equipment and makes it available to the user in return for a rental stream which, over the lease period, enables the owner to amortise (or recover) the cost of the equipment to it, and earn a return representing a financing charge on that original cost. Such an arrangement is often termed a “finance lease,” and this article looks at the use of such arrangements as a means of financing the acquisition of ships.

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