An operating lease agreement is a simple form of business asset finance where you (the lessee) leases an asset from a finance company (the lessor) for a proportion of the asset’s useful economic life.
The lessor is the owner of the asset while you, the lessee, has sole use of the asset. Unlike with a finance lease, an operating lease doesn’t see the lessee taking on the risks and rewards of asset ownership. The asset is also off balance sheet, with rental payments able to be offset against profits.
The operating lease period is generally over a short or medium term timeframe and the lease payable is lower, based on the original purchase price of the asset and its residual value at the end of the lease period. Then, the asset is returned to the lessor, for sale or further rental.