What is a nonservice lease?

A nonservice lease is an equipment lease under which the lessee is responsible for the maintenance, insurance and taxes as well as all other costs incurred in operating the equipment, as opposed to a service lease.  A nonservice lease is analogous to the triple-net lease in real estate leasing, since the lessor bears the fill risks of ownership while having to re-lease the equipment or sell it in order recover at least the asset’s residual value.  In the transportation sector, a nonservice lease commonly comes in the form of a dry lease of aircraft or the bareboat charter of marine vessels.

A dry lease is a leasing arrangement in which the owner of an aircraft transfers to the lessee and aircraft operator possession of the aircraft for a specified period – starting from two years onwards – but without a flight crew, fuel, maintenance or insurance.  The charter company (lessee) pays for the fuel and the flight crew when it operates the aircraft and commonly obtains these services from an independent third party, such as a management or pilot services company.  Dry leases are usually utilized by leasing companies and banks rather than operators.  Aircraft under a dry lease is operated under the air operator certificate (AOC) of the lessee, who must also provide aircraft registration.

Under a bareboat charter, the legal, registered owner of a marine vessel (ship, boat) transfers (demises) possession, use, control of the vessel to the bareboat charterer.  The bareboat charterer (lessee) takes the place of the legal, registered owner (lessor) and becomes responsible for crewing, maintenance, operation, insurance and all technical operation and commercial operation and management expenses during the bareboat charter period.  A bareboat charter hire is the lease payment for a bareboat charter of a specified amount, usually per day and payable monthly in advance by the demise charterer to the legal and registered owner, generally “come hell or high water”.