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The Operating Lease Explained

  • The operating lease is confirmed as appropriate for schools and compliant with the Academies Financial Handbook
  • Less is more is a social enterprise financial institution that is accredited by the Department of Business Energy and Industrial Strategy
  • The rules of an operating lease mean that the longer the lease the lower the required interest rate. As a social enterprise we have extended the lease to the maximum length given the expected economic life of the equipment. Maximising the length of the lease minimises the interest rate and this minimum interest rate is what is charged through the lease. The interest rate is fixed for the period of the lease. 
  • At the end of the lease there are a number of options open to the school.  It can approach us to further extend the lease payments or it can return the equipment.  However, if the school wishes to purchase the equipment, it is valued at an arms-length value. 
  • The lease finance is extended to the school via a company limited by guarantee (CLG).  The school is able to control the CLG if it wishes although to date, no school has chosen to do this and so we run and operate the CLG.  The CLG has the same social mission as we do and is hermetically sealed as far as cash is concerned.  It cannot pay the directors any fees or expenses and CLGs are prescribed from paying dividends.  It is the CLG that owns the equipment and so at the end of the lease the school can pay the CLG the value of the equipment. 
  • As the CLG has to use the money to pursue the social mission, if the school wishes to use this money to pursue the social mission the cash can be gifted back to the school.  If the school cannot commit to using the cash to increase the resources available to educate disadvantaged children the CLG will be required by its articles to gift the cash to another school.  The condition of the transfer of the cash means that it the lease is an operating lease and not a finance lease. 
  • The school can choose to control the CLG from the commencement of the lease or just before the end of the lease if it so wishes.   

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