An Operating Lease is similar to a Finance Lease, the difference is the rentals are calculated on a figure that is less than 90% of the original cost of the equipment. This leaves the lessor with an investment in the asset, which they need to recoup at the end of the term by either extending the Lease or selling the equipment.

This type of Lease is normally used in the Public Sector or where the business needs the Lease to be "off balance sheet". For this to apply the Lease must qualify under the SSAP21 (Statement of Standard Accounting Practice) rule. This is called the 90% rule. Also the Lease must be deemed "value for money" by the risk of ownership, obsolescence and ultimate disposal not being carried by the customer.

At the end of the agreement the lessor will give you adequate notice of the impending end of the Lease. At that stage you will have the option to either return the asset or enter in to an extension. Extension rentals should be based upon a ‘fair market value’ of the equipment, which should be significantly lower than the initial rentals.