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Simple English definitions for legal terms
tax lease
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A quick definition of tax lease:
A tax lease is a type of contract where someone who owns property lets someone else use it in exchange for money. The person using the property pays rent and can use it for a certain amount of time. There are many different types of leases, like ones for businesses or for mining. Sometimes, a lease can be transferred to someone else. A tax lease is also called a leveraged lease.A more thorough explanation:
Definition: A tax lease is a type of leveraged lease used by businesses to finance the purchase of capital equipment. The lessor (usually a financial institution) provides nonrecourse financing to the lessee, who has substantial leverage in the property. The lease is collateral for the loan through which the lessor acquired the leased asset, and that provides the lender's only recourse for nonpayment of the debt. The lessee pays maintenance costs and taxes and has the option of purchasing the asset at lease-end for a nominal price.
Example: ABC Company wants to purchase a new machine for their manufacturing plant but cannot afford to pay for it upfront. They enter into a tax lease agreement with XYZ Bank, who purchases the machine and leases it to ABC Company. ABC Company pays monthly lease payments to XYZ Bank and is responsible for maintenance costs and taxes. At the end of the lease term, ABC Company has the option to purchase the machine for a nominal price.
Explanation: The example illustrates how a tax lease allows a business to finance the purchase of expensive capital equipment without having to pay for it upfront. The lessor (XYZ Bank) provides financing to the lessee (ABC Company) and takes ownership of the asset, which serves as collateral for the loan. The lessee pays monthly lease payments and is responsible for maintenance costs and taxes. At the end of the lease term, the lessee has the option to purchase the asset for a nominal price.