LEASE, BUY & STATUS QUO

Introduction

In the study, the method are used for our group based on the lease vs buy vs status quo
(LvsBvsSQD). This process are the main and important for the whole project which are
managing the finance in order to run a project.
According to our proposed project, our company will use the (LvsBvsSQD) concept to
run the project. With this concept, our company may get to manage the financial during the
construction process and get the higher benefits. In this concept, it will have advantages and
disadvantages in this concept compare to other concepts.

Lease
A lease is a contract outlining the terms under which one party agrees to rent property
owned by another party. It is a legal agreement that allows someone to pay money so that they
can use an asset such as a car or building for a particular period of time. It guarantees the lessee,
also known as the tenant, use of an asset and guarantees the lessor, the property owner or
landlord, regular payments from the lessee for a specified number of months or years. Both the
lessee and the lessor face consequences if they fail to uphold the terms of the contract. In lease
concept, there are have various type of lease such as the financial lease, operating lease, sale
and leaseback and etc.

1. Financial Lease
Financial leasing is a contract involving payment over a longer period. It is a long-term
lease and the lessee will be paying much more than the cost of the property or equipment to the
lessor in the form of lease charges. It is irrevocable. In this type of leasing the lessee has to
bear all costs and the lessor does not render any service. The lessor assumes the role of a
financier and hence services of repairs, maintenance etc., are not provided by him. The legal
title is retained by the lessor who has no option to terminate the lease agreement.
2. Operating Lease
An operating lease or maintenance lease is a contract that allows for the use of an asset,
but does not convey rights of ownership of the asset. An operating lease represents an off-
balance sheet financing of assets, where a leased asset and associated liabilities of future rent
payments are not included on the balance sheet of a company. The lessor bears the risk of
obsolescence and incidental risks. There is an option to either party to terminate the lease after
giving notice. In this type of leasing

 lessor bears all expenses

 lessor will not be able to realize the full cost of the asset
 Specialized services are provided by the lessor.

3. Sale and leaseback

In a sale and leaseback, a company owning the asset sells it to the lessor. The lessor
pays immediately for the asset but leases the asset to the seller. Thus, the seller of the asset
becomes the lessee. The asset remains with the seller who is a lessee but the ownership is with
the lessor who is the buyer. This arrangement is done so that the selling company obtains
finance for running the business along with the asset.

4. Full and non pay-out lease

A full pay-out lease is one in which the lessor recovers the full value of the leased asset
by way of leasing. In case of a non pay-out lease, the lessor leases out the same asset over and
over again.

5. Specialized service lease

The lessor or the owner of the asset is a specialist of the asset which he is leasing out.
He not only leases out but also gives specialized personal service to the lessee. Examples are
electronic goods, automobiles, air-conditioners, etc.

6. Cross border lease

Lease across national frontiers are called cross border lease, shipping, air service, etc.,
will come under this category.
7. Import Lease
In an import lease, the company providing equipment for lease may be located in a foreign
country but the lessor and the lessee may belong to the same country. The equipment is more
or less imported.

4.3 Buy or Purchase Concept

The set of procedures used to identify products for purchase, verify quality and
compliance of products and vendors, carry out purchasing transactions, and verify that
operations associated with purchasing have been executed appropriately. Different
organizations have buying processes of varying complexity, depending on the industry in
which they work and the nature of the products being purchased.

The buy and purchase concept, we can save more cost for a long term. In the long run,
buying and purchasing facility is usually cheaper than leasing. It can produce a higher profit in
project. In a lease, the landlord attempts to manufacture a benefit for himself into the rent.
Payment of tax and other can be deductions and be avoided by buying the facility.

Besides that, company will own the equipment, so you can make any alterations
necessary. Maintenance process is only according to requirement and it based on the company,
so you can ensure issues and problem get settled promptly.

The disadvantages of buy and purchase are it will have a higher initial cost and it may
be difficult to pay for costly equipment all at once. Other than that, there is also the option of
getting equipment financing that uses the actual equipment as collateral on your loan, low
interest rates, and etc.
4.4 Status Quo

The status quo is the state of affairs that exists at a particular time, especially in contrast
to a different possible state of affairs. In the project, to stabilize and maintain the current
situation is to keep the affairs on the way but there are uncertain relate and unhelp with the
environment condition. As the most relevant example, in the world today the competitors may
change tactics, customers may change buyers, and governments may change policies. In the
end, the status quo is not enough, and organizations need to learn to adapt the situation and
move on.