Operating Lease

An Operating Lease is a Lease agreement where the lessor retains the risks and benefits of ownership of an Asset, and the lessee uses the Asset for a specified period without acquiring ownership. Operating Leases are typically shorter than the useful life of the Asset and do not appear on the balance sheet as liabilities. The lessee makes periodic Lease payments for the use of the Asset.

Examples:

• A company Leases office equipment, such as printers or copiers, for a few years without the intention of buying them.
• A business rents vehicles for a short-term project instead of purchasing them outright.

Cases:

• A technology firm enters into an operating Lease for servers to keep up with rapid technological changes without significant Capital Investment.
• A construction company Leases heavy machinery for the duration of a project, returning it to the lessor after completion.