What Is a Leasehold Cost?

Lease expenses refer to all cash outflows incurred by an enterprise to lease equipment. Including rent, equipment installation and commissioning fees, interest, handling fees, maintenance fees, insurance fees, guarantee fees, nominal purchase fees, etc.

Rental costs

Right!

Lease expenses refer to all cash outflows incurred by an enterprise to lease equipment. Including rent, equipment installation and commissioning fees, interest, handling fees, maintenance fees, insurance fees, guarantee fees, nominal purchase fees, etc.

Chinese name

Rental costs

Foreign name

Rent Expense

Nature

cost

Features

Occurs for rental equipment

Advantages

Transfer of contract to lessor

specific contents

1.Rental

The main factor in determining rent is the price of the lease. The price of the equipment is generally composed of three major factors: the purchase price of the equipment, the freight and the insurance premium on the way.

The purchase price of equipment is generally determined by the lessee and the lessor based on the current market price. In order to prevent the lessor from arbitrarily increasing the purchase price of the leased equipment, the lessee can also directly negotiate with the supplier, negotiate the purchase price and other terms, and then negotiate with the lessor, and sometimes even sign the order with the supplier in the name of the buyer Contract, and then transfer the contract to the lessor.

Most equipment in international leasing is imported, which will involve different pricing methods. If the price is CIF, it will be directly regarded as the equipment purchase price; if it is FOB price, transportation and insurance premiums will be added to the price. In many financing lease methods, freight and insurance costs are paid by the lessee, so when determining the rent, these two costs should be deducted from the equipment price.

2. Installation and commissioning fees

In the non-leasing business, the price of the equipment obtained by the enterprise shall include the installation and commissioning fee of the equipment. When calculating rent, it depends on the specific situation. If the installation and commissioning of the equipment is the responsibility of the lessor, then this cost must be included in the calculation of the rent. If the tenant pays the installation and commissioning costs, it should not be included in the rent.

3.Interest

Modern international leasing is mainly for financing purposes, so lessors have to charge interest at a certain rate. Moreover, the equipment of the lessor may not necessarily be purchased with its own funds, but also borrowed. The level of interest rates is determined by the average market interest rate, tax factors, financing costs of leasing companies, and spread risk. Interest income is the business income of the lessor, so certain business taxes and income taxes must be paid according to regulations. Leasing companies 'funding sources, financial status, lessees' creditworthiness, financial market conditions and their future trends also affect interest rate changes. In addition, different methods of rent payment will also affect the amount of interest, such as regular payments, irregular payments, equal payments, and incremental payments.

4. Handling fees

The handling fee is the fee charged by the lessor in order to compensate for various daily expenses, such as office expenses, wages, travel expenses, advertising expenses, taxes, etc. Part of the lessor's daily expenses is the variable cost, which increases with the increase in business volume; the other part is the fixed cost, which has a smaller relationship with the business volume. There are two methods for calculating the handling fee: one is based on a certain percentage of the asset price, and the other is included in the rent. Generally speaking, for international leasing, whether it is to purchase equipment from abroad and then lease it to domestic enterprises, or rent it from abroad and sublease it, the handling fee is always higher than domestic leases.

5. Maintenance costs

The maintenance cost of the equipment is also the cost paid by the enterprise to obtain the right to use the equipment. From the perspective of form, whoever repairs the equipment will bear the corresponding costs. However, as lessors have more similar equipment available for lease, have certain professional maintenance capabilities and scale benefits to serve many customers, the maintenance costs in the lease form are often included in the rent, but are relatively low. Therefore, when leasing decisions are made, the cash flow related to maintenance costs should be analyzed and estimated as accurately as possible in order to make more reasonable decisions.

6. Insurance premiums

In order to prevent accidental losses, companies that purchase equipment must not only bear the insurance premiums for transportation directly or indirectly, but also the insurance premiums during the use of the equipment. Different financing schemes and different lease forms have different forms of insurance premiums. For example, under the operating lease method, during the entire economic life of the equipment, because there are many lessees and the lease period is short, the insurance premium is paid by the lessor and then passed on to the lessee in the form of rent. Under the financial lease method, the insurance costs are mostly paid by the lessee. In the leasing decision, in order to make the analysis and comparison based on the same basis, this must be fully considered.

7, guarantee fee

In the international leasing business, the lessor always expects to recover the investment and profit from the rent, interest and handling fees. However, due to various reasons, the lessee cannot pay the rent as scheduled, or the leased equipment is damaged or worn out too quickly due to improper use, so the lessor has to bear various risks. In order to avoid losses, the lessor often asks the lessee to guarantee it with a reputable institution. The guarantee agency charges fees. Sometimes the guarantee fee cannot be ignored due to the great value of the leased equipment, so it cannot be easily omitted in decision-making.

8. Nominal purchase fee

Under the financial lease method, after the lease expires, according to the contract, the leased enterprise may buy the original leased equipment for a certain price, and its retention purchase fee may be much lower than the actual value of the asset at the time of the retention purchase, or it may be in line with the current market price Consistently, no matter how to retain the purchase, this part of the expenditure is the company's cash outflow, which must be taken into account in the lease decision.

Some lease contracts will also stipulate that when returning the equipment, the lessee must guarantee its new and old level. If the equipment is excessively worn, the lessee shall compensate the lessor in the form of monetary funds at the replacement price of the equipment. For example, company A leases equipment from company B for a lease of 5 years. It is a non-retained lease. When it is returned, the original level is 40%. If the actual level is 30%, it is assumed that the equipment replacement price is 100,000 yuan at the end of the period. The lessee must compensate for the excessive loss of 10,000 yuan. This part of the compensation is also part of the lease decision.