Leasing is a contract between the lessor (owner) and the lessee (user) of an asset, giving the lessee possession and use of the specific asset on payment of rentals over an agreed period.  The lessor retains ownership of the asset so that it never becomes the property of the lessee or any other related third party during the tenure of the lease.


Basically, there are 2 types of lease: Finance and Operating Lease

Finance Lease: also called the CAPITAL or FULL PAY-OUT LEASE, is a contract in which the lessee is obligated to pay agreed lease rentals periodically to the lessor over the tenor of the lease in return for the possession and use of the asset under lease.  It is “a contract involving payment over a period of time (known as the primary or basic period), of specified sums sufficient in total to amortise the capital outlay of the lessor and provide for the lessor’s cost of funds plus a desired return.

Operating Lease: is a lease agreement in which the cost of the asset is not fully amortised during the primary lease period and the lessor does not necessarily depend on the lease rentals during the primary lease period for his total returns but expects to recover the balance of its cost plus profit from the secondary lease or sale of the returned asset at the end of the lease period.  In other words, the operating lease is usually for a period shorter than the economic life of the asset after which it can then be re-leased to the same lessee or some one else at a new rental rate or even sold.


Only operating leases are cancellable before the end of the lease term, Finance leases are not cancellable, except by mutual consent before the expiration of the term.


The rentals (the fees paid) are structured to suit the cashflow of the Lessee (user of the asset), which could either be monthly, quarterly, twice a year or depending on the agreement..


6 months – 36months


Various equipment can be leased ranging from household to business equipment: agriculture, telecommunications, transportation, aviation, office, mining, manufacturing etc.


i. Identify what equipment you need to serve your purpose (type, model, cost, duration), then request for a lease facility through an application, enclosing all the relevant documents-certificate of incorporation, memorandum and articles of association, write-up on the background, ownership structure, management, financial history, projections of cash flow, balance sheets, income statements over the lease tenor and the assumption on which the projections have been made.

ii. The lessor reviews the application, putting it through his own financial, risk and credit analysis/checks. If the proposal is found to be viable, the credit report is then presented to the board or relevant authority for approval. If the board approves, the potential lessee is then advised accordingly in an offer letter detailing out the conditions of the offer/facility. If the lessee finds the offer acceptable, it will then forward the acceptance of the offer letter to the lessor. The lessor’s legal department is then requested to prepare the lease agreement (as well as a contract of sale, if it is a sale and leaseback transaction).

iii. All parties to the deal then review the agreement and sign accordingly. The relevant government authority is then notified of the intention of the lessor to incur a capital expenditure for the purpose of capital allowance claims, if it is entitled to claim. The equipment is purchased and delivered to the lessee. The lessee starts paying rentals until the expiration of the lease.


i. It provides additional source of credit to lessees as lessors can have access to financing sources not otherwise available to lessees. While banks, insurance companies, pension funds and other investors may be willing to finance a leasing firm, an individual lessee may not qualify.

iiWorking capital is conserved and there is a diversified financing source base, particularly during tight liquidity periods.

iii. It requires little or no capital outlay by the lessee, which makes it really affordable.

iv. Some lease contracts may allow the lessee to expense the periodic rental payments in such a way that the rental expense is greater than the possible depreciation expenses if the equipment were owned. This has a tendency to increase tax-deductible expenses and improve cash flow.

v. As an off-balance sheet financing method, leasing enables a firm to acquire needed productive assets without risking the displeasure of investors in the enforcement of capital budgeting procedures. Thus, the firm’s borrowing capacity may be greatly enhanced.  Debt/equity ratios are kept low and a good liquidity picture is presented.  Furthermore, leasing as off-balance sheet financing conceals sources of funds from competitors.

vi. In sale and leaseback arrangements, lessors appraise the value of the firm’s assets, buy them and then lease them back to the firm, thus releasing the much-needed working capital and cash flow.

vii. Since lease contracts are generally written for longer tenor, a lessee is able to stabilise his equipment usage cost over several years. This protects the lessee against rising inflation.

viii. It quite often does not go through capital expenditure control and may not be subjected to the close scrutiny often associated with capital expenditure proposals.

ix. It acts as a hedge against stranded, idle and under-utilised assets as well as obsolescence, particularly in an industry that is vulnerable to rapid technological change. Leasing helps the lessee to avoid the risk of obsolescence associated with the leased asset by initially transferring the risk to the lessor.  This is a major advantage in cases where the lease is cancelable before the expiration of the lease tenor.

x. It offers the lessee greater flexibility than other forms of asset financing in the structuring of rental payments. Payments can be structured in such a way as to suit the peculiarities of the lessee including his cash flow pattern and any seasonal or cyclical business conditions to which it is exposed.  These payments may be level/even, skipped, stepped-up or stepped-down plans that may not be available with other financing alternatives.

xi. Lease financing in Nigeria is often easier to arrange than a conventional term loan in terms of the time and costs involved in negotiating terms and conditions of each financing alternatives.

xii. It avoids the corporate overhead expenses charged against the income of a subsidiary based on assets under its control.

xiii. The present value of the after-tax lease rental payments is usually lower than the cost of purchasing equipment outright, particularly when borrowed funds are used to acquire the equipment.

xiv. Since lease rentals are generally fixed outflows over the tenor of the lease, a lessee can easily predict the pattern of its cash outflows for budgeting purposes.

xv. It relieves the firm of the problem of disposing the asset at the termination or end of the lease. He can simply transfer to the lessor, thus saddling the lessor with the responsibility of disposal.

xvi. It might be the only feasible method of acquiring the use of assets either because such assets are too expensive, not available for purchase at all or cannot be bought piecemeal. Such assets include earth satellite stations, transmitters or large-scale IT systems.  Since a firm really needs only a fraction of the services of this equipment, its best option will be to lease a part for a period of time at a stretch.

xvii. It relieves the lessee from the tremendous paperwork, delays and efforts associated with shopping around for the right equipment to buy, the most convenient and cheapest source of funding the acquisition and the book-keeping attendant to asset ownership.


Leasing is similar to other forms of equipment financing. However, it has distinct nature from the other methods.

i. Hire Purchase – the assets are delivered to a person who agrees to make periodical payments by way of hire with an option to purchase. There are two transactions i.e. Hire and purchase combined into one. A lease is technically a hire contract without more. So when a lease contract gives the lessee an option to purchase, it takes the transaction outside the purview of a lease to hire purchase. Thus, while all equipment leases may be described as contract of hire, not all contracts of hire may be regarded as leases. Therefore, the key difference between a lease and hire purchase is the absence of ”purchase option” in a lease.

It must be noted that, finance lease has same characteristic with hire purchase in that the intention of the lessee is to buy the asset at the end of the lease. However, the lessor cannot expressly state this intention by giving “purchase option”. To avoid the pitfall of the transaction, being construed as hire purchase, it utilises other legal techniques to meet the intention Fortunately, the Equipment Leasing Act (ELA,2015) has made the position clearer and provides further relief in this regard.

ii. Conditional sale is a transaction which the purchaser agrees to buy and take possession of goods under which the purchase price or part of it, is payable in instalments. There is an absolute contract of sale and the buyer can pass a good title. In a lease, the lessee, does not have proprietary interest as title belongs to the lessor

iii. Credit Sale is an agreement where title in the asset passes immediately but where the purchase price is left outstanding as a loan and is repayable over time with interest. Again, title in a lease resides with the lessor.

iv. Loans – are granted in money lending transactions and in a number of other transactions which enable the recipient of the loan to buy goods. Lenders are not necessarily the owner of the asset purchased through loan unlike in a lease where the lessors are owners.


 The Lessee either returns the asset to the Lessor (owner of the asset), re-lease the asset or pay an agreed sum to take over the asset.


i. The Lessors (owner of the asset) – provides the asset to be leased and sometimes other ancillary services as well. Generally, lessors purchase, manage and in some cases re-market the equipment as part of the lease process and also tailor the financing to fit the needs of the user.  The lessor retains title to the asset throughout the tenor of the lease. The lessor may be a financial institution, independent leasing companies, finance houses etc.

ii. The Lessee – is the user of the equipment, who has possession but not the title to the asset. In return for the use of the asset, the lessee is obligated to make regular periodic rental payments to the lessor.  The lessee’s equipment servicing and financing needs are critical in the development of an appropriate lease product and overall transaction.

iii. The Lease Broker – who acts as intermediary. His functions include determining the requirements of the prospective lessee, arrange for the equipment with the dealer or manufacturer, raise finance for the lessor for the purpose of purchasing the asset etc. In return, the broker receives compensation from the lessee for whom he acted as consultant and/or from the lessor for whom he provided a business.  The broker may be an investment banker, finance house, accounting firm or independent consultant or even a legal firm.


– Register with Corporate Affairs Commission
– Register with ELAN: Attend some qualifying lease training with ELAN
– Apply for membership online