LEASING TERMS
      ...Commonly Used Terms

Here you will find information on the various lease terms that are affiliated with a lease transaction.

10% Purchase Option: A provision by which a lessee has the right to purchase the equipment at the end of the lease for 10% of the original purchase price. 

Capital Lease ($1 Buyout): Type of lease classified and accounted for by a lessee as a purchase and by the lessor as a sale or financing, if it meets any of the following criteria: a) the lessor transfers ownership to the lessee at the end of the lease term; b) the lease contains an option to purchase the asset for $1.

D&A (Delivery and Acceptance): A document whereby the lessee acknowledges that the equipment to be leased has been delivered, and is ready to be operational.

Economic Life (Useful Life): The period of time during which an asset will have economic value and be usable.

Equipment Schedule: A document that describes in detail the equipment being leased.  It may also state the lease term, commencement date, repayment schedule and location of the equipment. 

Lease : A contract in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rate.

Lease Rate (Rental Payment) : The periodic rental payment to a lessor for the use of the assets.  Others may define lease rate as the implicit interest rate in minimum lease payments.

Lessee: The user of the equipment being leased.

Lessor: The party to a lease agreement who has legal or tax title to the equipment, grants the lessee the right to use the equipment for the lease term and its entitled to the rentals. 

Master Lease: A contract where the lessee leases currently needed assets and is able to acquire other assets under the same basic terms and conditions without negotiating a new contract.

Operating Lease (FMV Purchase Option): Any lease that is not a capital lease. These are generally used for equipment that has a short useful life.  The lessee can acquire the use of equipment for just a fraction of the actual cost of the asset.  If the lessee chooses to own the equipment at the end of term it can be purchase for fair market value. It allows the lessor to claim ownership and the lessee to claim rental payments as tax deductions.

Present Value: The current equivalent of payments or a stream of payments to be received at various time in the future.  The present value will vary with the discount interest factor applied to future payments.

Put Option: The requirement to purchase equipment at a particular time and a predetermined price.  In a lease transaction, this is the lessors right to force the lessee ( or some third party ) to purchase the equipment at the end of the lease term.  

Sale Leaseback: An arrangement whereby equipment is purchased by a lessor from the company owning and using it. The lessor than becomes the owner and than leases it back to the original owner, who continues to use the equipment.

Trac Lease: A tax oriented lease of motor vehicles or trailers that contain a terminal rental adjustment clause and otherwise complies with the requirements of the tax laws.