Which type of lease does not transfer asset ownership at the end of the lease term?

An operating lease is characterized by its lack of transfer of ownership of the asset at the end of the lease term. In this type of lease, the lessee rents the asset for a specific period while the lessor retains ownership. The terms of an operating lease typically allow for lower periodic payments compared to financing or capital leases, which are designed to eventually transfer ownership of the asset to the lessee.

Because the lessee is not obtaining the economic benefits and risks of ownership, operating leases are often used for assets that are not intended for long-term use or when the lessee prefers to avoid the responsibilities that come with ownership, such as maintenance and obsolescence. This is why an operating lease is distinct from financing or capital leases, where the intent is to finance the purchase of the asset and transfer ownership over time. Municipal leases can also be structured to be operating leases, reinforcing the concept that not all leases involve the transfer of asset ownership.