Why do municipalities lease assets?
Municipalities on both ends of a lease transaction can benefit from the lease.
As the lessee, a municipality benefits from access to and use of an asset it may otherwise not have been able to afford.
As the lessor, a municipality can generate income from an unused asset, and a lease helps them avoid keeping cash tied up in a non-productive asset.
Example:
A municipality needs vehicles but does not have the cash to buy several outright. They lease spare vehicles from a larger municipality nearby.
The smaller municipality can now use and access these vehicles without fronting the entire purchase price. Meanwhile, the larger municipality earns income on these vehicles to offset the cash tied up and potential depreciation.
A lease can be for any term, but a lease must have a term over a definite period of time with a particular starting and ending date.
Alternatively, there are other types of rental arrangements, including a periodic tenancy, the latter of which has a starting date but not an ending date.
A month-to-month arrangement is a periodic tenancy, even if mistakenly called a lease. This is because a month-to-month arrangement does not have an ending date and will continue indefinitely until either party terminates the tenancy.
A lease is supported by a lease agreement, the latter of which can be oral or written, but written lease agreements provide more protection for both parties. At a minimum, the writing that memorializes a lease agreement should include accurate names and contact information for both the lessor and the lessee, identify the specific commercial property that is the subject of the lease, and define the period of time which will be subject to the lease.
Additionally, the writing should define whether the lessee can sublease the property and whether a dispute resolution forum has been chosen.
What’s important here?
A lease is for a specific amount of time. Many municipalities act as both lessors and lessees.
