True lease is a type of lease which doesn't end with passing on ownership rights. In most lease agreements the lessee has the opportunity to get ownership rights of the asset at the end of the period of lease contract. However, in case of true lease that is not possible. The lessor keeps the asset after the contract ends.
True lease is used when the lessor has to deal with risks of ownership of the property after the contract period ends. For example, environmental issues. The lessor also can cover maintenance costs, taxes, etc., during the contract. From the lessee point of view true lease is very similar to rental.
The other type of lease is financial lease. In that case all the costs are covered by lessee, who usually obtain the ownership rights at the end of the contract.
- Eisfeldt, A. L., & Rampini, A. A. (2008). Leasing, ability to repossess, and debt capacity. The Review of Financial Studies, 22(4), 1621-1657.
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