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- CONDITIONAL SALE LEASE
- A transaction whereby the lessee, from a federal income
tax perspective (and perhaps even state tax), is actually the owner
of the equipment. It is sometimes called a conditional sales contract
or a "money-over-money" lease or a lease intended as security.
The Conditional Sale Lease gives the tax benefits (depreciation) to
the lessee, instead of the lessor. It has a predetermined purchase amount
at lease-end with no reference to a "Fair Market Value". It
transfers title at lease-end after a required or nominal purchase payment
- DEPRECIATION
- A method of recovering the cost of a purchased asset
over a period of time by deductions that offset income. Depreciation
appears in both financial reporting and tax arenas. From a tax perspective,
depreciation causes a reduction in taxable income that lowers the asset
owner’s tax liability. This is the tax benefit of owning the equipment
- EPO
- The EPO, which stands for “Early Purchase Option,”
is a lease option which allows for a buyout at a specific point in the
lease term at a predetermined amount. This amount approximates a payoff-type
amount, allowing a known purchase amount within a tax lease.
- FAIR MARKET VALUE
- The value of equipment sold assuming the transaction involves an informed
and willing buyer and an informed and willing seller, at arm's length.
- FIRST AMENDMENT
- This lease, often used for high-tech, high-obsolescence
equipment, has a lease-end purchase provision for “the greater
of Fair Market Value or a fixed amount.” At the end of the lease,
the lessee’s options are either a purchase of the equipment or
a continuation of the lease.
- FMV
- The traditional true lease whereby the equipment can
be purchased at lease-end for its then Fair Market Value (FMV).
- FMV CAP
- A variation on the FMV Lease. The lease-end purchase
option is the Fair Market Value, not to a exceed a predetermined fixed
percentage amount, or 'cap'. The cap is determined after studying the
expected lease-end values.
- FULL-PAYOUT LEASE
- A lease whereby the lessor receives all costs incurred
in the lease plus an acceptable rate or return, without considering
any return from future residual value.
- LEASE BROKER
- An entity that provides specific services in the lease
transaction without retaining the lease transaction for it’s own
portfolio. Often referred to as a third party originator.
- LEASE RATE
- The equivalent simple annual interest rate implicit from the stream
of minimum lease rentals, as distinct from the implicit lease rate.
- LESSEE
- The user of the equipment being leased.
- LESSOR
- The owner of equipment which is being leased to a lessee or user.
- OFF BALANCE SHEET FINANCING
- Any financing, including an operating lease, that
is not required to be reported on an owner's balance sheet.
- OPERATING LEASE
- From an accounting perspective (as defined by FASB
13), this lease is the opposite of a capital lease. This type of lease
is not required to be shown on the lessee’s balance sheet. Typically,
the lessor takes a high residual position in pricing the lease, which
lowers the lease rentals..
- PAYMENTS IN ADVANCE
- A payment stream in which each lease payment is due at the beginning
of each period during the lease.
- PAYMENTS IN ARREARS
- A payment stream in which each lease payment is due
at the end of each period during the lease.
- PURCHASE OPTION
- An option in the lease agreement that allows the lessee
to purchase the leased equipment at the end of the lease term for either
a fixed amount or at the future fair market value of the leased equipment.
- REFUNDABLE SECURITY DEPOSIT
- An amount paid by the lessee to the lessor as security for fulfillment
of the lease contract’s obligations. The deposit is refunded when
all obligations have been satisfied.
- RENEWAL OPTION
- An option to renew the lease at the end of the initial
lease term.
- RESIDUAL OR RESIDUAL VALUE
- The value of leased equipment, whether the actual
or expected value, at the end of the lease term.
- SALE-LEASE BACK
- A transaction that involves the sale of owned equipment by the owner
to a lessor followed by a lease of the same equipment back to the original
owner who continues to use the equipment.
- TAX LEASE
- A true lease is a transaction that is a lease for IRS purposes so
that the lessee can claim rental payments as tax deductions and the
lessor can claim benefits associated with equipment ownership such as
depreciation. The same as a true lease.
- TERM
- The time period that a lease is in effect.
- TRAC
- For business use motor vehicles only, this type of true lease provides
a Terminal Rental Adjustment Clause (TRAC), allowing a fixed purchase
option at the end of the lease.
- TRUE LEASE
- A term sometimes used to mean tax lease. Also used to mean a lease
for commercial law.
- VENDOR LEASING
- Leasing services offered by a manufacturer, dealer or a third party
leasing company under a formal or informal relationship between the
third party leasing company and the manufacturer or dealer.
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