If you asked a group of people how long leasing has been around, most will say since the creation of the motor car. However, its true origins go back much further. In this guide we will be talking about the history of leasing and where it originated from, the different types of leases and assets, and how leasing has evolved over the years to where it is now.
Being involved in the world of leasing, it’s interesting to discover where and how it all began. Therefore, throughout this document we will be enlightening you all about leasing, from the very beginning to modern day. The guide will also highlight what will be done in the future with regards to leasing. This includes green leasing, so, renewable energy sources and the leasing of low emission and/or electric vehicles. We hope you find this guide interesting and informative.
Where it all began
The original concept of leasing dates all the way back to the Bronze Age when the ancient Sumerians Greeks began leasing their land, farming tools, livestock, mines and ships.
Interestingly, evidence of leasing has also been found in ancient Babylonian cuneiform tablets.
There is also evidence suggesting that the Romans used leasing back in 200BC. This was when the Roman empire created a body of law relating to movable and non-movable goods. At this time, leasing was used for farmland, towns, cities, and personal properties.
Leasing – the last two thousand years
The leasing concept was further used mainly in the farming industry where a landowner would lease their land to a farmer. In return for the use of the land, the farmer would pay back the landowner by handing over produce.
Farmers would also lease farming equipment owned by priests who during this time formed part of the Governing law.
Shipping was another area where leasing was popular. Even now we use phrases such as ‘pay come hell or high water.’ meaning that payment must be made regardless of the circumstances. This phrase dates to ship charter agreements dated hundreds of years ago.
To this day, a ‘hell or high water contract’ still exists, meaning that the borrower must succeed in paying until the end of their contract despite any difficulty that they may face to do so. Normally, these types of contracts are only used when the lender is taking a big risk by lending to the client. Hell or high water contracts can be used for project financing, indentures and acquisition agreements.
Furthermore, during the 1700’s, horses and carts would be leased. This has now morphed into railways, barges, and other forms of transport. This shows how the idea of leasing has evolved over time.
Leasing – within the last two hundred years
No one knows what organisation can be attributed to the use of the concept of leasing to help sell their equipment. However, we do know that back in 1877, the Bell Telephone Company in America started renting phones to customers. This is one of the first noted examples of the concept of modern leasing.
By the next century, car leasing had originated in the US. This concept was introduced by Zollie Frank in 1914. This gave the middle classes the opportunity to afford and access cars. As before car leasing was introduced, it was only the very wealthy that could afford cars.
During the 1900’s, many manufactures started offering payment options to consumers to help promote the sales of their products. These manufacturers would then sell on this credit sale agreement to banks and other finance companies who would pay them upfront in return for the revenue stream. This is what we now call receivables financing.
In 1954, US Leasing Corporation commenced trading, this was believed to be the first equipment leasing company of its kind.
The equipment leasing industry was first introduced in 1973 by a company called First Leasing, founded by Farouk Irani in India. This influenced others into entering the leasing industry despite the amount of doubt that Irani faced from suggesting his concept to the first bank that he went to work for. However, it wasn’t until the 1980s that financial institutions made their way into the world of leasing. The state Bank of India was the first commercial bank to set up a leasing subsidiary, in October 1986. And by 1990 there began a leasing uprise, with around 400 leasing companies at this time.
Power Leasing was incorporated in 1976 and is recognised as one of the oldest UK leasing brokers. Proud to say, a WestWon acquisition.
Power Leasing has also celebrated its 45-year anniversary of helping customers with their business funding on the 25th of June 2021. As a company, we have over 362 years of combined experience in leasing and asset finance. This is supported by our knowledgeable and friendly staff. Over the years we have built up relationships with 52 current UK funders.
GE – the world’s leader in appliances
General Electric (GE) is a multinational conglomerate, based in Boston, Massachusetts. They currently focus on the 4 main sectors of aviation, power, renewable energy and the digital industry.
In 1907, GE produced their first line of cooking devices. Over the next 100 years they have led innovation in the kitchen appliance sector, producing a sealed fridge in 1925, a dishwasher in 1936, a washing machine in 1947. Toasters, electric can openers, combination spray steam iron followed.
In 1932, GE created the GE Credit Corporation to help sell their products via instalment plans. This business later became GE Consumer Finance with GE Capital being formed in 1977. On the website for GE Capital, they say how they are “the financial services division of GE, focused on serving customers and markets aligned with GE’s industrial businesses. From emerging markets to developed economies, our focused team of finance experts connect capital to infrastructure and deliver innovative financial solutions that help make the world work better.”
Where does the word ‘lease’ come from?
According to the online etymology dictionary, the word lease originated in the 14th century. It derives its name from ‘laissier,’ and Anglo-French word that means to let, allow, permit, or leave. Throughout the years, there have been many different types of leases that have derived from this first word. Across all industries the three main lease types are a finance lease, an operating lease and a contract hire agreement. These will have evolved over time as well as the first lease that was ever agreed upon.
What is a lease?
It is important to understand what a lease is and how it works. Put simply, it is an agreement between two parties, where the owner (lessor) offers the customer (lessee) an asset for a fixed period of time for a fixed compensation.
A few famous sayings…
One of the most famous and heavily used sayings in the leasing sector was devised by John Paul Getty.
‘If is appreciates in value, buy it, if it depreciates, lease it.’
Another well-known saying, be it we do not know who to attribute to.
‘Without the car industry, there would be no leasing sector, without the leasing sector, there would be no car industry.’
Leasing cars as a concept was introduced by Ford Motor Company in the UK in the early 90’s. They introduced private contract hire to the market, which led to a small number of people starting to be interested. Because of the cost at the time, as well as the low demand, it didn’t reach enough people, however it did plant the idea in people’s minds. Around the late 90’s, there started to be a larger increase in demand for leasing cars, and this is why a number of car leasing companies were set up. They were operating on the idea of a taking contract hire agreements to businesses, usually small and medium sized enterprises (SME’s). On the other hand, banks were not interested in this, as they were only interested in larger vehicle fleets, because this is all they had been providing asset finance for, for a long number of years.
Leasing in the 21st century
Despite leasing’s history dating all the way back to the ancient Babylonians, leasing has never been more prevalent than it is now in the 21st century.
Leasing is one of the most popular and used forms of finance throughout the world, heavily promoted by manufacturers and supplier of capital equipment.
With regards to auto leasing, data from the British Vehicle Rental and Leasing Association (BVRLA), shows that leasing increased by 14% in 2019 with an estimate of 5 million vehicles on the UK’s roads today being leased. Many suggest it being the new and more affordable way forward. Similarly, according to Edmunds (an auto-dealer based in the U.S.), “leasing accounted for 32 percent of new retail vehicle sales in the U.S., representing an increase of 41 percent over a five-year period.”
There has also been a large increase in the number of devices and technological equipment being financed throughout the years. Currently at WestWon, as may be the case for several other leasing brokers in the UK, the focus has shifted more towards software and internet-based assets. There are several benefits to this, and with most companies now technologically advanced, in some cases it is now essential that a business has some form of software license or internet-based system/device.
Aside from ownership, leasing is probably the most popular legal form of holding assets across the world.
There is no sign that leasing, being a financial service, will be replaced with other forms of funding.
How many people now work in the leasing sector in the UK?
Over 50,000 people are directly employed in the UK in the leasing sector. A large proportion of them are in car and vehicle leasing sector.
According to a report by the BVRLA in 2018, 3 years ago the UK’s vehicle rental and leasing industry contributed around £49 billion to the UK economy. The industry is also set to grow in the years to come. So, it’s apparent that leasing is becoming more and more popular!
What is leased?
Most assets….as we say, ‘if it has a plug on it or leaks oil, more often than not, the asset can be leased.’
If the asset has a value over £500.00 and has a life expectancy of a year or more, likewise, you will often find a funder that will offer a leasing solution.
In the future, we predict there will be surge in the amount of sustainable assets being financed. This includes zero emission vehicles, renewable asset finance (such as renewable energy sources) and changes to rules and regulations that might affect the leasing industry. An example is the ultra-low emission zone, which is being expanded in 2021. We also believe companies will have to do more to help the environment and start creating plans and strategies to combat this.
In terms of the future of leasing, sustainable assets such as onshore wind power, solar panel leasing and efficient LED lighting are more likely to be leased. Zero emission vehicles are also on the rise. These are vehicles that don’t emit exhaust gas and other pollutants from it, and instead use a more efficient source of power according to CARB (the California Air Resources Board). This can relate to all types of vehicles including cars, vans and lorries. With the world, not just in the leasing industry, becoming more environmentally conscious, the future of leasing is expanding into a more sustainable place.
We hope this guide has been both informative and interesting for you to read. Our sources can be found below of where we were able to gain the information used in the guide. We hope that this guide has been useful in giving some interesting insights into the past, present and future of leasing. If you would like any further information on anything you have read in this guide, then please do not hesitate to contact us, we will be happy to help.
GE Capital: https://www.gecapital.com/
GE Capital: https://en.wikipedia.org/wiki/General_Electric
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