Law and Economics of Leases
Preliminary draft; do not cite without permission THE ECONOMICS AND LAW OF LEASING Thomas W. Merrill* This paper is about a widespread and highly successful economic institution that has been largely ignored in both economic and legal literature: leasing. A lease is a transfer of an asset for a limited time in return for periodic payments called rent. Leases are used to acquire a very wide variety of assets. Resources that are commonly leased include agricultural land, mineral and timber rights, commercial office buildings, shopping centers, industrial and commercial equipment such as ships, aircraft, machinery and computers, residences including both freestanding houses and apartments, autos and other motor vehicles, and furniture, among other things. Other than ownership, leases are probably the most common legal form of holding assets throughout the world. Although comprehensive data about leasing are not available, a brief glance at such data as exist confirms the very high frequency with which leasing is used, both in the U.S. and in other developed economies. A large percentage of households lease the dwelling in which they live, and the percentage leasing rather than owning has increased since the recession of 2007- 08. In the first quarter of 2017, the United States Census Bureau reported that 32 percent of housing units were occupied by persons who lease, as opposed to own or live in units with others. In Europe, the percentages are generally similar, although in Germany and Switzerland roughly half the population live in leased dwellings. Leases of personal property are also surprisingly pervasive. By one estimate, leases account for more than twenty-five percent of all new capital equipment in the U.S., and approximately 80 percent of all U.S.
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