The Growth of Leasing – A Better Choice?

by Struan Robertson

Lease or borrow? Today’s owner is looking at an increasingly competitive market for finance and, while the terms offered in the traditional ship finance market are attractive, there is a trend towards the use of a lease as an additional or alternative structure.

Most owners have an objective and will seek to find a structure that meets that objective. The most obvious is the cheapest finance available in the market place. Another is the ability to keep the shipping activities of the company off the balance sheet.

Different lease structures produce different consequences for tax and accounting purposes. In the case of the finance lease, where substantially all of the risks and rewards are taken by the lessee, the accounting owner will be the lessee, whereas the lessor may well be the tax owner. Under a hire purchase agreement, the lessee is both tax and accounting owner; whereas, in a lease purchase structure, the lessor will be the accounting owner and the lessee the tax owner. The most recent development on leasing has been the rebirth of the operating lease, where the lessee agrees to take the ship for a limited period and the lessor retains the risk and reward of the residual value – here both the accounting owner and tax owner will likely be the lessor.

This is only an excerpt of The Growth of Leasing – A Better Choice?

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