Service Agreement Lease

Assuming that the service provider essentially enjoys all the economic benefits of the asset, the next test is whether there is a lease, which party has the right to determine how and for what purpose the asset is to be used. In its most basic form, a service contract is an agreement for one party (the service provider) to provide “services” to another party (the recipient). We must point out that the catch-all definition of service contracts also includes other forms of contracts, including, but not only, electricity reception contracts, (ii) toll agreements, (iii) energy performance contracts, and (iv) product supply and consumption agreements. Often, the purpose of the asset is predetermined; One example is a solar installation whose sole purpose is energy production. For such predetermined assets, neither the recipient nor the supplier then has the right to direct its use. In this case, it is defined by the nature of the asset or company agreement, in which case the next question is whether the customer can change the user manual throughout the use. Assuming that an asset generates some form of benefit that can be measured economically. for example, a railway car is used to move grain and the contractor pays for the movement of grain on the basis of the cargoes being transported. The economic benefits of the rail car are represented by the revenue generated for the relocation of these grains. The party receiving payment for the shipment is the service provider and determines the resources to be used to move the grain. To structure a transaction as a service contract and not as a leasing contract, the basic business model would normally have to change.

Whether both parties to the agreement would accept this change depends not only on the rate that would be charged for the agreement, but also on the level of service that the recipient would expect from the provider. There are other service agreements that may also constitute a lease and should also be valued, for example: where a lease relates to assets, service contracts relate to services. In this case, one person pays another person to provide him with a service – carpenters, plumbers, caterers and IT professionals are just a few examples of contract service workers. Determining how the instructions can be applied to actual patterns of fact has proved difficult for some companies.