Fundamentals of Business

Hire purchase

Hire purchase(frequently abbreviated to HP) is the legal term for a contract developed in the United Kingdom. Hire purchase differs from a mortgage and similar forms of lien-secured credit in that the so-called buyer who has the use of the goods is not the legal owner during the term of the hire purchase contract. If the buyer defaults in paying the instalments, the owner may repossess the goods, a vendor protection not available with unsecured consumer credit systems. HP is frequently advantageous to consumers because it spreads the cost of expensive items over an extended time period. Business consumers may find the different balance sheet and taxation treatment of hire purchased goods beneficial to their taxable income. The need for HP is reduced when consumers have collateral or other forms of credit readily available.

Contract Hire

is a term used in the UK to describe a longer term (usually 3 year) RENTAL of a vehicle. There is a considerable industry - the Contract Hire and Leasing sector - in the UK, with the largest current player being LEX - a wholly owned subsidiary of the Halifax Bank of Scotland that runs in excess of 250,000 vehicles. The UK industry is arguably the most successful and best managed (and served) of all, worldwide, largely driven by the UK's undying passion for company funded vehicles for business - or perks. The industry has a representative body - the BVRLA - which seeks to look after the interests of, and sets standards for operational quality for both the Contract Hire and leasing sectors and the Daily Hire (Car rental) sectors.

The BVRLA's membership has close to 2 million vehicles under management in the UK. These companies rent vehicles to business users, normally including maintenance and repair plan for the period of the user's choice. The vehicle remains the property of the Lessor (Contract Hire Company) and never becomes the property of the lessee (the company renting and using the vehicle). Contract Hire is a very popular choice for V.A.T Registered companies with more than 40% choosing this Funding method (Fleet Week). Tax advantages and reduced administration assists business to budget more accurately for their vehicle requirements. Contract Hire is available to Sole Traders, Partnerships and Ltd Companies.

A lease or tenancy is the right to use or occupy personal property or real property given by a lessor to another person (usually called the lessee or tenant) for a fixed or indefinite period of time, whereby the lessee obtains exclusive possession of the property in return for paying the lessor a fixed or determinable consideration (payment).
In law, there are two types of property:
Real property is land or any permanent feature or structure above or below the surface. Ownership of land is an aspect of the system of real property or realty in common law systems (immovables in civil law systems and Conflict of Laws).

All other property is considered personal property or personality in common law systems (movables in civil law and Conflict of Laws), and this property is either tangible or intangible , i.e. it is either physical property that can be touched like a computer, or it is an enforceable right like a patent or other form of intellectual property.

There are three separate levels of rights or interests affecting both forms of property.
In descending order of importance they are:
ownership,
possession or
Control and use.

The legal documents that transfer these rights are respectively: conveyance/transfer, lease/tenancy, and bailment/pledge for tangible personality, assignments and licenses for intangibles.

Commercial leasehold
Benefits of commercial leasing
for businesses, leasing property may have significant financial benefits: Leasing is less capital intensive than purchasing, so if a business has constraints on its capital, it can grow more rapidly by leasing property than it could by purchasing the property outright. Capital assets may fluctuate in value. Leasing shifts risks to the lessor, but if the property market has shown steady growth over time, a business that depends on leased property is sacrificing capital gains. Leasing may provide more flexibility to a business which expects to grow or move in the relatively short term, because a lessee is not usually obliged to renew a lease at the end of its term. Depreciation of capital assets has different tax and financial reporting treatment from ordinary business expenses. Lease payments are considered expenses, which can be set off against revenue when calculating taxable profit at the end of the relevant tax accounting period.

Disadvantages
There are some significant drawbacks:
If circumstances dictate that a business must change its operations significantly, it may be expensive or otherwise difficult to terminate a lease before the end of the term. If the business is successful, lessors may demand higher rental payments when leases come up for renewal. If the value of the business is tied to the use of that particular property, the lessor has a significant advantage over the lessee in negotiations.