Operating Lease

Definition

A lease treated as a rental agreement rather than an asset purchase, historically kept off the balance sheet in a beautiful accounting loophole. Airlines loved these for planes; retail loved them for stores.

Example Usage

The company had operating leases for 200 store locations, representing billions in off-balance-sheet obligations that investors had to footnote-dive to find.

Origin

Distinction formalized in accounting standards in the 1970s, substantially changed by ASC 842 in 2019

Fun Fact

New accounting rules now require capitalizing most operating leases, ending decades of companies pretending their lease obligations weren't really debt.

Source: Lease accounting standards (FASB ASC 842, IFRS 16)

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