Operating Lease

Formal

A lease (see separate definition) is an Operating Lease if:- a) Lessee doesn’t own property at end of lease AND b) Lease term is less than 75% of the economic life of the asset AND c) Net Present Value of rental and lease payments are less than 90% of its fair market value. Reported ‘Off Balance Sheet’.

Real-world Example

A company leases a fleet of cars for 2 years, well short of the vehicles' useful life, with the leasing company retaining the risks of ownership - a straightforward operating lease, typically kept off the balance sheet as a simple rental expense.