Which of the following describes the benefits of a finance lease for the lessor?

• A. It reduces the lessee's maintenance obligations.
• B. It guarantees tax benefits to the lessee only.
• C. Automatic assignment of warranties, enforceability of the hell-or-high-water clause, and transfer of risk of loss to the lessee.
• D. It ensures ownership transfers to the lessee at the end of the term.

Answer: (C)

In a finance lease, the lessor seeks to secure a steady income while shifting most ownership risks and burdens away from itself. The key protections often included are: the warranties related to the asset can be assigned to the lessee, so the lessee handles warranty claims and servicing rather than the lessor; the hell-or-high-water clause makes the lessee’s lease payments unconditional—due regardless of asset performance or other issues—protecting the lessor’s cash flow; and the risk of loss is transferred to the lessee, meaning the lessee bears the asset’s risk of damage or theft rather than the lessor. Taken together, these elements explain why the option describing automatic assignment of warranties, enforceability of the payment covenant, and transfer of risk of loss to the lessee best reflects the benefits to the lessor.

Ownership transfer at the end of the term is not guaranteed in all finance leases, so that specific outcome isn’t a universal benefit of the arrangement.