In a financing lease, what risks do lessors usually retain?

In a financing lease, lessors typically retain certain risks related to asset performance and ownership. This means that they are responsible for ensuring that the asset will perform according to the lease agreement and that they maintain ownership rights and responsibilities related to the asset.

For instance, lessors have a vested interest in the asset's performance since their return on investment depends on it being used effectively by the lessee. If the asset underperforms or becomes obsolete, the lessor bears the consequences, impacting their financial return. Additionally, ownership risks entail that even though the lessee has possession and use of the asset, the lessor retains title and must manage any ownership rights and liabilities that come with it.

In contrast, liabilities for repairs and maintenance generally fall to the lessee in a financing lease structure, as they are utilizing the asset. Financial risks associated with the asset, such as depreciation or market value fluctuations, are typically shared or transferred to the lessee through payment structures. Liabilities for lease agreements with third parties are also not a standard retention for lessors, as these obligations are usually clearly defined and negotiated in the lease contract.