Lease Rate
What Is a Lease Rate?
A lease rate is the amount of money paid throughout a predetermined time span for the rental of an asset, for example, real property or an automobile. The lease rate — the amount the lessor acquires from permitting another person to utilize their property — repays them for not having the option to utilize that property during the term of the lease.
How a Lease Rate Works
The importance of lease rate relies upon the setting in which it is being utilized — in particular what type of property is being leased.
In commercial real estate, the lease rate is the cost to occupy the space, ordinarily stated as a dollar amount for every square foot of room each year. The lease rate can likewise be stated in terms of dollars each month — similarly as with a rental agreement — or even dollars each year.
The terms of the lease will explain the time span that the lease rate applies for — it might likewise illuminate incremental expansions in the lease rate over long term leases.
To find out about the cost of renting a space (notwithstanding the lease rate), the potential tenant should be aware on the off chance that the lease is single, double, or triple net. A single net lease is a commercial real estate lease agreement in which the tenant consents to pay property taxes notwithstanding rent.
A double net lease is a rental agreement by which the tenant consents to cover the costs of two of the three primary property expenses: taxes, utilities, or insurance premiums. Otherwise called a net (NN) lease, these are generally normally found among commercial tenants.
At last, a triple net lease (triple-Net or NNN) is a lease agreement on a property by which the tenant or lessee vows to pay every one of the expenses of the property, including real estate taxes, building insurance, and maintenance.
Since most commercial lease rates are set out in dollars per square foot, it makes it more straightforward for the possible lessee (tenant) to compare the leasing costs of properties with different size profiles.
Special Considerations
The subject of when to lease equipment or space — instead of building or purchasing — is one that businesses battle with. Generally talking, the key factor is the means by which long the leased property is expected to be being used. For more limited term floods in equipment demand or operational expansion (moved by transitory market conditions), leasing is a fantastic solution that limits sunk costs.
In the event that the increased demand is expected to be long-term, the up-front costs of ownership as a rule diminish in comparison with the savings over the long run and the potential for appreciation in a commercial property.
All things considered, a few companies like to lease over the long term in any case, as it eases the company from being required to worry about non-core business issues like equipment and building maintenance.
Types of Lease Rates
Auto Leases
With regards to cars and equipment, the leasing company basically purchases the vehicle from the dealer and rents it to you. So the lessor has "loaned" the money for the purchase upfront and you are paying back on that loan.
Albeit the dealer and the leasing party can be a similar person, setting up the three-party agreement permits the dealership to sell inventory to the leasing arm and the leasing arm to generate income on these pseudo loans before moving the vehicle back into the dealership as utilized inventory. The lessee gets a vehicle that they can use without the burden of ownership.
On account of an automobile lease, the regularly scheduled payment on the vehicle depends on the vehicle's expected depreciation and residual worth — a predetermined amount that the vehicle will be worth toward the finish of the lease term — as well as the lease rate, which is normally stated as a percentage. Through regularly scheduled payments, the lessee remunerates the automobile dealer for both the vehicle's depreciation and for tying up assets in vehicles as opposed to investing that money somewhere else.
In this case, the lease rate is generally equivalent to an interest rate. The lease payments incorporate the lease rate factor, likewise called the money factor, that catches the financing element of vehicle leases.
Space Leases
On account of commercial property, the building has been developed as an investment with the expectations of acquiring tenants. There are just two substances in this transaction, and any compensation for the initial investment in the building is baked into the lease rate as part of the overall business plan.
Features
- A lease rate is an amount paid by the lessee to the lessor for utilization of an asset for a set period of time.
- The terms of the lease will illuminate the time span that the lease rate applies for and may likewise explain incremental expansions in the lease rate over long term leases.
- Lease rates are generally communicated as dollars each month, yet they can likewise be stated as dollars per square foot of room each year — similarly as with commercial real estate.
