What do Schools Need to Know About Operating Leases?

An operating lease is a simple contract that involves periodical payments for the use of assets/equipment. Operating leases lend themselves perfectly to a wide variety of assets.

What is an Operating Lease?

An operating lease is a simple contract that involves periodical payments, usually paid quarterly, for the use of assets/equipment. The finance company providing the operating lease maintains ownership of the assets across the term and, in effect, rents the equipment to the end customer. They are usually taken on by schools who prefer to stay on a cycle of new equipment as it gives a school the ability to hand the equipment back at the end of the agreed term thus allowing for upgrades. It is usually a short term contract and it is up to the lessor to maintain the equipment throughout the term.

 

What can a School Lease?

Operating leases lend themselves perfectly to a wide variety of assets. IT equipment forms the bulk of a schools main leased assets. If we think about all of the areas within a school, from minibuses to Wi-Fi equipment, these are all assets which depreciate over time so this is the perfect solution for schools who would prefer to pay for their equipment as they derive the benefits.

 

What happens at the end of an Operating Lease?

At the end of an operating lease, it is expected and pre-agreed that the school returns their equipment to the finance company. The finance company then refurbishes the equipment and sells on the second hand market. There are some other possible options at the end of an operating lease such as ‘continued indefinite use’ which means the finance company will request one last payment to cover any anticipated residual value thus allowing the school to keep the equipment. Title stays with the finance company or can be transferred via a non-connected 3rd party such as the schools PTA.

 

Is it compliant?

Under existing regulations, the only type of lease agreement that can be taken on (without prior specific approval) by a state-funded school is an operating lease. Finance leases, on the other hand, are viewed as a form of borrowing and are prohibited unless prior approval is obtained from the Secretary of State. In practice this means that finance leases are rarely allowed. So an operating lease is 100% compliant with government guidelines. Click here to learn more about leasing guidance from the DfE.

 

Money Sphere adhere to all compliance and government regulations relating to operating leases. We are fully transparent and can help you make the correct & informed decision. Click here to get in touch today.

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