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What is lease termination?

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Lease termination is the discontinuation of a lease either voluntarily before the scheduled end of its contractual lease term, involuntarily or cancellation by the lessor.  The termination of a lease before the scheduled end of its contractual lease term is early termination.  The forced termination of a lease before the end of the basic contractual lease term due to lessee’s default or such other reasons as the total loss of the leased asset is lease cancellation.

Lessee Recognition of Finance Lease Termination
Date Lease Obligation xxxx
Accumulated Depreciation xxxx
Leased Asset xxxx
To clear related accounts upon lease termination

A leased asset is said to go off-lease when equipment has been returned to the lessor at the end its lease term or earlier due to lessee default or other termination and becomes available for sale or re-leased.  Off-lease equipment is commonly remarketed by the lessor’s remarketing group.

Equipment upgrades, which are generally encouraged by lessors, account for the majority of early terminations and prepayments.  Under an equipment upgrade, the lessee takes out a lease for new equipment either at termination of the original lease prior to its termination date, often on favorable terms.  Equipment upgrades are common in vendor leasing.

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