What Is a Rent Premium?

In the leasing business, the compensation received by the lessor from the lessee for the transfer of the right to use the asset. It appears as rental income in the lessor and as rental expense in the lessee. The rent of the leasing business is usually determined based on the cost of the asset in the negotiation between the lessor and the lessee, and is calculated based on time, such as a few monthly rents.

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Varies with lease types and lease conditions.

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Calculation method: The difference in the calculation method of rent for the same lease transaction directly affects the total rent.

Interest rate: Given the total cost of leased equipment, interest rate is the most important factor affecting the amount of rent. Under the condition of fixed interest rate, if other factors remain unchanged, the higher the interest rate, the larger the total rent, and vice versa. Under the condition of floating interest rates, if other factors remain unchanged, the sum of LIBOR plus the interest rate spread is higher, and the current rent is greater, otherwise the opposite is true.

Lease term: The length of the lease term directly affects the total rent, because the longer the lease term, the longer the lessee will occupy the investor s funds, the heavier the interest burden on the lessor, and the lessor s interest burden It must be recovered by means of funds. Therefore, the lease term is directly proportional to the total rent. The longer the lease term, the larger the rent amount, and vice versa.

Rent payment interval: refers to the time interval between the rent payment date of the previous period and the rent payment date of the current period. The rent payment interval generally includes annual payment, semi-annual payment, quarterly payment and monthly payment. The longer the rent payment interval, the longer the lessee will occupy the lessor's funds, and the larger the rent amount will be, and vice versa.

Payment methods: There are two types of payment methods: rent payment at the beginning of the period and rent payment at the end of the period. In the case of rent payment at the beginning of the period, the lessee's time to occupy the lessor's funds is relatively shorter, so the total rent is less. The rent paid at the end of the period has to increase relatively.

The amount and method of payment of the deposit: Generally, the more the lessee pays the lessor to the lessor, the less the total rent, and vice versa. In addition, whether the security deposit is deducted from the estimated cost of the leased equipment or used as part of the final rental payment will have a large impact on the total rental.

Payment currency: In international leasing, domestic lessees should consider the currency of rent payment when leasing foreign leased equipment. Generally speaking, rents are higher for payment currencies with high interest rates and high exchange rates.

Interest calculation date and lease start date: Due to different methods of determining the interest calculation date and lease start date, the time interval between them will be different, and there will be differences in interest accumulation, which will have a certain impact on the total rent.