About
Publication Information
Subscriptions
Permissions
Advertising
Journal Rankings
Best Article Award
Press Releases
Resources
Access Options
Submission Guidelines
Reviewer Guidelines
Sample Articles
Paper Calls
Contact Us
Submit & Review
Browse
Current Issue
All Issues
Featured
Latest
Topics
Videos
Cases
Subscribe
California Management Review
California Management Review is a premier academic management journal published at UC Berkeley
Search
Article Information
Understanding Lease Financing
Weston, J. Fred, and Rupert Craig
2
/
2
(
Winter
1960
):
67
-
75
This paper seeks to provide a foundation for understanding leasing. It centers on specific numerical examples to make clear sources of the financial advantages and disadvantages of leasing. It is hoped that the framework provided will make it possible to identify circumstances under which leasing may be the appropriate method of financing the use of assets. In the immediate post World War II period, there were many special tax aspects of leases which have since been closed by Bureau of Internal Revenue regulations. Bureau rulings have somewhat stabilized the major characteristics of bona fide lease transactions as follows, one, the term must be less than 30 years, otherwise it is regarded as a form of sale. Two, the basis for the rent should represent a reasonable average return to the lessor, on his investment. Three, the renewal option should represent a bona fide renewal option and this can best be established by merely giving the lessee the first option for an equal bona fide outside offer. Four, there shall be no repurchase option or, as in the case of the renewal option, the lessee should simply be given parity over an equal outside offer. Thus, in a sale and lease-back transaction, the original sale must represent an arm's length transaction between the seller and purchaser.
