The Upside: Leasing and financing equipment and the impact of the new ASC 842 standards
Helpful lessons learned for lease accounting
An evergreen lease contract automatically renews after each completion or maturity period, until canceled by one of the parties. While positioned by the lessor as a convenience for prolonged use of equipment assets without formal lease extensions, it also is a tactic to get lessees to pay more over time than the equipment is worth if purchased outright.
Equipment lease agreements provide the lessee with a fixed price option to purchase the asset at the completion of the initial term of the contract and the customer has made all payments. In many cases, the burden is on the lessee to notify the lessor of their intent to exercise the purchase or partial renewal option, and oftentimes notice should be made in a specific way and within a specified time period. For example, the lease agreement may require the lessee to provide notice of intent to the lessor via certified letter 120 days before the expiration of the original equipment lease agreement. If the lessee fails to provide notice within those parameters, the lease will automatically renew for an additional term(s). The end result: By making payments beyond the original contract terms, the lessee pays significantly more than the equipment is worth.
How to avoid overpaying for evergreen equipment leases
There are three ways to avoid future overpayment due to evergreen equipment lease agreements:
Learn more about how CoStar’s lease administration software manages creates and receives notifications, payment obligations, views updates across entire lease portfolio, sets workflows quality control and more.
Learn more about what makes a good equipment leasing program.
Learn more about the impact of ASC 842 on leasing and financing equipment.
Helpful lessons learned for lease accounting
The lease versus buy cost and savings opportunities is a debate that has a long-standing place in...
The new ASC 842 and IFRS 16 lease accounting standards are compelling organizations to examine...