Fixed assets are subject to technical, economic and time-based wear and tear. They can therefore only be used for a certain period of time. The useful life specified in the official depreciation tables (deduction for wear and tear) serves as an indication for assessing the appropriateness of the tax deduction for wear and tear. It is based on the actual useful life of a company operating under normal conditions. A shorter useful life can be recognised if an asset is used particularly intensively, e.g. by multi-shift operations. This useful life determined on a company-specific basis forms the framework for the possible terms of a lease agreement (40–90 percent rule).

In the case of a partial amortisation contract, the payments made by the lessee during the contractual basic term (lease instalments) only cover part of the acquisition costs. For the non-amortised part of the acquisition value (residual value), a pre-emptive right is agreed as a contractual component for the lessor. This means that the lessor can sell the item to the lessee after the expiry of the lease at a price previously agreed in the lease. Unlike a purchase option, the lessee is not entitled to purchase the item.

When lease agreements expire, they can be extended or follow-on contracts can be signed. The value basis for the follow-on contract is at least the residual value not yet amortised for partial amortisation contracts and the residual carrying amount or lower common value (market value) for full amortisation contracts. 

The remaining depreciation period is used as a guideline for the extension period. If a follow-on lease contract is not possible due to the remaining depreciation period, a follow-on rent-to-own agreement can also be concluded. As a significantly lower amount is financed further, the monthly instalments are also significantly lower. 

Leasing companies have extensive property and market expertise. They are familiar with the specific properties and conditions of use of the investment asset, know its life cycle as well as the corresponding usage options after the expiry of the lease agreement and can anticipate the value-over-time. This allows lessees to receive the best possible advice on the use of the investment asset throughout the entire life cycle.

A balloon payment can be added in the rent-to-own contract to be paid at the end of the term to reduce the monthly financing instalment. As with the residual value in leasing, the balloon payment is based on the value trend of the property. The more valuable the property, the higher the possible balloon payment can be.

As soon as this contract enters into force, Commerz Real will provide financing in the amount of the total acquisition costs. The lessee will pay the lessor provisioning compensation for the part of these provisioned funds that has not yet been paid from the planned start of the contract until the actual start of the contract or until the contract is terminated prematurely before the start of the lease term.

The future lessee first orders the investment item selected by them from the supplier. After concluding the lease agreement, the lessor enters into the purchase commitment of the customer order with the supplier and thus becomes the buyer of the capital goods. Deliveries are made to the customer on behalf of the lessor. On our behalf, the customer signs the flawless final acceptance, so that the lessor can pay the invoice issued to them and thus have ownership under civil law directly. The prerequisite for this form of settlement is that the capital goods have not yet been delivered.

When talking about a leased property, fungibility means the third-party use or recyclability of the investment asset. A leased item is not fungible if it can only be used in an economically meaningful way by one specific user. The lessor is only the beneficial owner of an item if it is a fungible asset.

Start-ups can generally also conclude leasing and rental purchase agreements via Commerz Real. These contracts require a separate review by our risk management.

When talking about a leased property, fungibility means the third-party use or recyclability of the investment asset. A leased item is not fungible if it can only be used in an economically meaningful way by a specific user. The lessor is only the beneficial owner of an item if it is a fungible asset. 

• Fungible items: trucks, cranes, wheel loaders, buses 
• Non-fungible items: ventilation units, machine-specific automations

Used equipment can be financed in two ways:

• already used equipment can be purchased from a dealer, as a brand-new item is not required. This is often the case with demonstration machines or used vehicles. 
• The customer wants to increase their liquid funds, sell items from their inventory and lease them back via sale-and-lease-back. 

Manufacturers of fixed assets use their own leasing offers to promote the sale of their products. For this purpose, they hold leasing companies as subsidiaries that focus their sales activities on the manufacturer’s product range. In exceptional cases, they also conclude contracts for non-manufacturer items.

Lease agreements cannot be terminated during the firmly agreed basic lease term. In justified and economically justified cases (e.g. in the event of total loss of the leased item), lease agreements can also be terminated prematurely by mutual agreement during the basic lease term, which cannot be terminated in itself. As a rule, compensation payments must then be made. The lessor may terminate the contract if the lessee fails to meet their payment obligations or if other circumstances arise that clearly put the proper performance of the lease agreement at risk. 

The terms of lease agreements are based on the tax framework conditions (leasing ordinances, depreciation periods) and customer requirements that are important for accounting purposes. The non-cancellable basic maturities may not be shorter than 40% and not longer than 90% of the depreciation period. Different types of lease agreements allow for individual term structures.

The term “leasing” means renting or paying for the use of an item. In the case of a lease investment, the lessor provides a lessee with an investment asset for use for an agreed period of time against payment of a (usage) fee. 

The four leasing ordinances published by the Federal Ministry of Finance govern the allocation of beneficial ownership of leased items and property and the presentation of leases in the annual financial statements of the lessor and lessee. They form the tax basis for the leasing business in Germany.

Go to the leasing ordinances

In the case of the rent-to-own financing model, the rent-to-own property becomes the legal property of the rent-to-own buyer after a previously contractually agreed rental period when the last instalment is paid. The acquisition costs are distributed over the contractually defined (monthly) instalments. In contrast to finance leasing, the rent-to-own property is capitalised by the rent-to-own buyer, who then immediately becomes the beneficial owner. VAT is due for the entire rent-to-own receivable (instalment multiplied by the term) with the first rent-to-own instalment and is claimed as input tax. Legal ownership passes to the rent-to-own buyer on receipt of the last rent-to-own instalment. Rent-to-own is used to obtain government investment grants or subsidies that are excluded from leasing investments.

When realising a lease investment and thus also when assessing the risk, value retention and the value trend of an investment asset are important aspects to consider. In addition to customer credit ratings, the value of the property is the second pillar of risk hedging. In this respect, a leasing investment differs significantly from traditional loan financing by a principal bank. Even when it comes to investments in high-quality, valuable capital goods, standard bank collateral (e.g. mortgages) is required. This is not customary for leasing.

The residual value in lease agreements is an imputed variable for determining the lease payments in connection with the intensity of use of the property. It is the amount on which the lessee does not make any lease payments during the term of a contract. Leases with a residual value are referred to as partial amortisation contracts. The higher the residual value, the lower the lease payments. The residual value is based on the residual carrying amount and the expected market value at the end of the lease. 
 

• Based on the residual value, a follow-on lease contract can be concluded. The market value determined at the end of the contract forms the basis for selling the leased property to a third party or to the lessee. The residual value is also the purchase price only if the market value is not higher than the residual value. 
• Residual book value: this is the residual carrying amount that results in the balance sheet according to the accounting provisions at the time of termination of the lease agreement for the leased asset.
• Calculated residual value: for the calculated residual value, the lessee and lessor assume that the leased property still has a certain residual value after the end of the agreed basic lease term, which results from the agreed use taking into account future market price developments.
• Market value: the market value is the actual value of an asset that can be achieved at the time of sale in the respective market situation. 

The lessee is only entitled to sublet the leased properties with the consent of the leasing company. Subletting entails additional risks for the lessor. For this reason, the lessor will regularly make their consent contingent on the creditworthiness of the lessee and the sub-lessee as well as, if necessary, on additional security measures, for example direct rent payments by the sub-lessee to the lessor.

The lessee is responsible for maintaining the functionality of the leased equipment. In order to reduce risks, lease agreements for industrial and production machinery generally provide for insuring the objects against machine breakage at the lessee’s expense. Leasing companies often support their customers in this regard.  

If the lessor makes payments to the supplier before the start of the lease term for the acquisition of the leased item, the lessee will pay the lessor the agreed pre-lease payment for this.