There are similarities and differences between real estate and equipment leases. While this post will delve into the details, it is important to note that effective lease accounting and management centralizes all lease types into one repository. A lease accounting software solution with the full functionality necessary to accurately track and manage the myriad of details associated with every lease type is the best initiative any business can take toward effective lease management.
Real estate and equipment leases: The similarities
Both real estate and equipment leases can generate initial direct costs as well as fixed or variable rents. Both can offer end-of-term options to purchase, extend or terminate the lease.
Real estate and equipment leases: The differences
While all leases share some basic feature and functions, there are many differences between real estate and equipment leases, including:
- Real estate leases typically only have one asset per schedule while equipment leases often have multiple.
- Real estate rents are often grounded cost per square foot, a market-based metric, while pricing for equipment leases are typically structured around a percentage of the total cost of the equipment.
- Also, it’s not uncommon for real estate lessees to sublease space, while equipment subleases are rare.
- Once assembling and centralizing lease data, companies also find there is a drastic difference in the volume of data generated by real estate and equipment leases. Specifically, there is usually a smaller volume of real estate leases, although the costs associated with these leases are very high. On the other hand, there can he a huge amount of lease data generated by equipment, although the costs associated with those leases are far lower.
Examples of Real Estate and Equipment leases:
Real estate leases can include, but is not limited to, warehouse space, office space, medical buildings/medical office space, retail storefronts, restaurants and data centers.
Equipment leases may include, but is not limited to, office furniture and equipment such as laptops, printers, copiers and desks; vehicle fleets such as trucks, tractor-trailers and airplanes; warehouse equipment such as forklifts, scissor lifts and conveyer belts; and medical equipment such as MRI machines and other high-tech medical equipment. To manage the complexities of both real estate and equipment leases, CoStar offers a comprehensive lease management software solution that allows users to easily manage and report on all types of leased assets, including the management of payment obligations, notifications, views changes and updates across entire lease portfolio, approval workflows, quality control measures and more.
Learn more about what makes a good equipment leasing program here.
Want to learn more about embedded leases often found within larger service agreements, such as security or telephony contracts? Read this.