What Is an Equipment Lease?

An equipment lease is a contractual agreement that allows a company to use physical equipment for a defined period of time in exchange for regular payments, without purchasing the equipment outright. Equipment leases are commonly used for assets that are essential to operations but depreciate quickly or require flexibility over time.

Equipment leases are most commonly used by businesses that need access to high-cost or fast-depreciating assets without committing capital upfront.

Unlike real estate leases, which are tied to physical space, equipment leases are centered on the use and control of specific assets.

What qualifies as an equipment lease?

An equipment lease typically applies to assets such as:

• Manufacturing machinery

• Vehicles and fleets

• IT hardware and servers

• Medical or laboratory equipment

• Data center infrastructure

In these agreements, the lessee controls how the equipment is used and often bears responsibility for maintenance, insurance, and operational costs.

How equipment leases are treated for accounting

Under ASC 842 and IFRS 16, equipment leases generally require recognition of a right-of-use (ROU) asset and corresponding lease liability on the balance sheet. Because equipment assets often have shorter useful lives and more variable assumptions than real estate, accurate classification and ongoing remeasurement are critical for compliance and audit review.

• Finance leases, or

• Operating leases

The classification depends on factors like lease term length, ownership transfer provisions, and whether the lessee receives substantially all of the economic benefits of the asset.

Regardless of classification, equipment leases generally require greater detail tracking than real estate leases due to asset-specific assumptions such as useful life, depreciation, and usage patterns.

Equipment lease vs. real estate lease

The key difference between an equipment lease and a real estate lease is what drives the economics of the agreement.

Equipment leases are driven by:

• Asset performance and utilization

• Maintenance and wear assumptions

• Operational intensity

Real estate leases are driven by:

• Square footage and location

• Fixed rent schedules

• Occupancy-related terms

This distinction is why certain assets, such as data centers, are often categorized as equipment leases even though they involve physical space.

Why equipment leases require specialized tracking

This complexity is why many finance and real estate teams struggle to manage equipment leases using spreadsheets or systems designed primarily for real estate.

Equipment leases often include:

• Usage-based cost components

• Non-standard depreciation assumptions

• Asset-level modifications over time

As portfolios grow, managing these leases in spreadsheets or generic systems increases the risk of missed terms, inconsistent reporting, and audit challenges.

Centralized lease administration software enables teams to track equipment leases alongside real estate assets while preserving the details that set these assets apart.

Summary

An equipment lease allows organizations to use essential assets without owning them, while retaining operational control and flexibility. Because equipment leases behave differently from real estate leases under accounting standards, they require clearer categorization and more detailed tracking to support accurate reporting and audit readiness.

Brooke Colglazier

Marketing Manager