What is the difference between a municipal lease purchase and a commercial/rental lease?
To a governmental lessee, the difference between a municipal lease and a commercial or rental lease is who owns or will own the asset. Most commercial leases are rental agreements allowing the lessee to use the lessors’ property, charging them for the use of the equipment. The lessee makes payments but does not build equity in the equipment and may or may not have an option to purchase the equipment/property. There may be a high residual value set at the end of the lease with a term much shorter than the useful life of the asset. With a municipal lease, the lessor provides money to the lessee to purchase property and charges the lessee interest for the use of that money. The term of a municipal lease generally can be as long as the lessee desires, up to the equipment’s approximate useful life. The lessee takes title to the property and the lessor takes a security interest in the property as collateral. The lessee builds equity with each payment and has the option to purchase the proper
