Week 6 P2 Flashcards
What is an entire agreement clause?
It means the final written contract is the whole agreement. If both parties sign a contract with an “entire agreement clause”, both parties agree the contract itself is the whole agreement
What are rental agreements?
This is where the rented good is given back at the end of the term. The ownership title is not transfered.
It is a 2 party transaction, where the owner transfers user rights to the tenant, and in return, the tenant pays the rent.
What is the division of costs for rental agreements?
Daily use costs are for the tenant.
Extraordinary costs and preservation costs are for the owner
What are leasing agreements
This is where the owner of the good transfers user rights and does not immediately transfer the ownership title, but allows the other party the option to buy the good at the end.
What are financial leasing agreements?
This is a 3-party transaction with a supplier/seller of good, prospective user which is the lessee, and the financial institution which is the lessor.
In this scenario, the lessee does not have the money or is unsure about buying a good. Thus, they ask a financial institution to acquire the good from the seller, and then become a lessor and lease the good to the lessee.
The lessee then pays the lease to the lessor during the agreement, and at the end gets the option to buy the good by paying the residual value, an extra paymetn
What does the lease remuneration consist of in financial leasing agreements?
The lease consists of payment of user rights and the investment value of the good. This is why the lessor does not hold economic risk since they are getting the full investment value back.
what happens if the lessee does not want to buy the product?
Then the lessor can do whatever it wants with the product. Remember, they don’t really care since they’ve gotten back their investment value from the lease payments
What is a leveraged leasing agreement
This is a 3-party transaction, where the supplier/seller of good is the owner and lessor, the financial institution is the funder, and the buyer is the lessee.
In this case, the owner of the good wants to lease goods. To do this they must buy the goods, but needs funding which is gained from financial institutions. They pay the interest to financial institutions in exchange for a loan to buy the goods, which is then leased to the lessor.
How does the funder get protection for when loaning the money?
The financial institution can make the lessor (tacitly) assign the right to payments against the lessee to the financial institution.
So for protection, the financial institution can ask the lessor to transfer the right to collect the lease amount. But of course as long as the supplier of goods pays back the interest as agreed, there is no reason for the funder to exercise and transfer the right to collect the lease amount
What is the sale and lease-back formula/agreement?
It is a 2 party transaction, where the original owner of the good is the seller and lessee, and the buyer of the good is the lessor.
So the seller of the good gives ownership to the buyer of the good. The buyer then gives the possession and user rights to the seller while receiving lease payments. So buyer becomes lessor and seller becomes lessee
What is an operational leasing agreement?
This is a 2 party transaction where there is a lessee and lessor. In this scenario, the lessee is often not interested in buying the leased good, but moreso the extra services.
What is the lease remuneration like for operational leasing?
The lease amount is the remuneration for receiving the user right, partial investment value, and mainly a payment for extra services. This means economic risk is with the lessor since they do not get back the investment value
What is another name for operational leasing agreement?
No full payout lease agreement. This is because the economic and legal risk is on the lessor. The lease payment does not include the investment value and often, there is not even an option to buy it.
