What is synthetic leasing?
Synthetic lease is a lease agreement that allows an entity that uses lease agreements, also known as a tenant, certain tax benefits and balance sheet considerations. The structure is established so that the owner of the property or the landlord allows the tenant of the property or the lessee to allow the right to operate on the property in exchange for rental payments. Although the lessee generally uses financing to pay rent, synthetic leasing does not appear as a responsibility in the balance sheet of the Lessee. In addition, the lessee is able to obtain beneficial tax treatment of interest payments made from the loan and any depreciation that the property could suffer. Companies are always very concerned about closing shops that improve their overall financial position. In many cases, agreements may be structured by ways that allow society to maintain its balance sheet -looking unaffected, even if they make a significant financial obligation. One such arrangement is known as the synthetic lease that allows SPOLogging the property without being negative in the balance sheet.
The two main parties of synthetic leases are a landlord, which is usually a bank or a special company established just for the purposes of the agreement, and the tenant who agrees to rent and on it. Therefore, this type of rent is also known sometimes as an operational rental. In many cases, the landlord also lends the lessee money to complete the agreement, allowing the introduction of financing.
During the operation of leasing, synthetic lease data allow the lessee to keep it out of balance. Such a value is extremely important for companies that are interested in demonstrating strong financial foundations to potential investors. Another positive thing for the lessee is that the company also receives tax benefits for any depreciation or any interest paid by the loan creditor.
It is important to realize that on the syntEthical leasing are placed some restrictions. For example, it must be structured in such a way that the lessee is not obliged to buy the property after completing the lease, even if it can do it if it wants it. In addition, the rent level must be maintained sufficiently low so that the total amount of payments for the entire duration of the lease does not increase around 90 percent of the market value of the property.