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| Glossary of Terms |
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A B C D E F G H I J K L M N O P Q R S T U V W X Y Z
A
Add-on
An add-on is a type of transaction that adds related equipment to an existing lease. Typically, the term add-on is used when this additional equipment is being financed using the same terms-such as Fair market value, or $1.00 purchase option-that were used for the original transaction. The only difference is that the length of the add-on is not the same as that of the original transaction. It is almost always a shorter period of time, expiring on the same date (that is, coterminously) as the lease for the original transaction.
Advance payments
This term refers to the one or more payments that must be paid at the beginning of the term of the lease. Such payments are also called 'Advance rents.'
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B
Big-Ticket
A market segment, generally dominated by leveraged leases, represented by lease financings over $1 million.
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C
Capital lease
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 one 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 at a bargain price; We strongly recommend you contact your accountant or tax specialist to determine what type of lease best suits your needs.
Coterminous
This term refers to two or more leases that are linked so that both will terminate on the same date.
Certificate of Acceptance (Delivery and Acceptance)
A document whereby the lessee acknowledges that the equipment to be leased has been delivered, is acceptable, and has been manufactured or constructed according to specifications.
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E
Economic Life (Useful Life)
The period of time during which an asset will have economic value and be usable.
Enduser
Also known as the lessee, is the party to a lease agreement who is obligated to pay rental installments to the lessor and is entitled to use and possess the leased equipment during the lease term.
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.
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F
Fair market value
This term is defined as the price for which equipment can be sold in an "arm's length" transaction-one that occurs between informed, unrelated, and willing parties, each of whom is acting rationally and in his/her/their own best interest.
Fair market value lease
This type of lease includes an option through which the person or company leasing the equipment has three choices. The individual or organization may either renew the lease at a fair market value renewal rate; purchase the equipment for its fair market value at the end of the lease term; or return the equipment. Though often referred to as tax leases, not all fair market value leases offer the same features or benefits that tax leases do.
Fixed purchase option
This is an option that allows the customer to purchase the equipment at the end of the lease term for a fixed percent of the original purchase cost. A typical fixed purchase option is 10% of the original purchase cost.
Fair Market Purchase Option
An option to purchase leased equipment at the end of the lease term at its then fair market value. The lessor does not have the ability to retain title to the equipment if the lessee chooses to exercise the purchase option.
Full Payout Lease
A lease in which the lessor recovers, through the lease payments, all costs incurred in the lease plus an acceptable rate of return, without any reliance upon the leased equipment's future residual value.
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I
Indemnity Clause
A clause in which the lessee indemnifies the lessor from loss of tax benefits.
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L
Lease
A contract through which the owner of equipment conveys the right to use its equipment to another party for a specified period of time (the lease term) for specified periodic payments.
Lease purchase agreements
These are full-payout net leases with a term reflecting the equipment's estimated useful life. Because many lease purchase agreements include a bargain purchase option-providing for the purchase of the equipment for $1 at the expiration of the lease-lease purchase agreements often are referred to as 'dollar-buyout' or 'buck-out' leases. Lease purchase agreements generally are considered capital leases from an accounting perspective and non-tax leases from a tax perspective, due to their bargain purchase option features and the length of their terms. We strongly recommend you contact your accountant or tax specialist to determine what type of lease best suits your needs.
Lease schedule
This term refers to the schedule attached to a master lease agreement, describing the leased equipment, rentals, lease term, and other terms applicable to the lease.
Lessee
A lessee is the party to a lease agreement who is obligated to pay rental installments to the lessor and is entitled to use and possess the leased equipment during the lease term.
Lessor
The lessor is the party to a lease agreement who has legal or tax title to the equipment (in the case of a true tax lease); grants the lessee the right to use the equipment for the term of the lease; and is entitled to receive all rental payments.
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M
Master lease
A master lease is a continuing lease arrangement-in which all terms and conditions of the original lease remain in force-permitting additional equipment to be added to the lease merely by describing such equipment in a new lease schedule executed by the parties to the original master lease.
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R
Residual Value
The value of an asset at the conclusion of a lease.
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S
Sale-leaseback
This term represents a type of transaction involving the sale of equipment to a leasing company and the subsequent leasing of the same equipment to the original owner, who continues to use the equipment.
Skip-payment lease
This type of lease contains a payment stream requiring the person or company leasing the equipment to make payments only during certain periods of the year.
Step-up or step-down
A lease feature that provides for a payment stream where individual payments may increase (step-up) or decrease (step-down) over the term of the lease.
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U
Upgrade
A term referring to a trade-in of leased equipment, during the term of the lease, for a newer, more advanced model.
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V
Vendor
The company that provides the equipment to be leased and is paid directly by the lessor/funder upon satisfactory delivery of all equipment and any other obligation required to complete the transaction. This may include but is not limited to installation, training, etc.
Vendor Leasing
A working relationship between a financing source and a vendor to provide financing to stimulate the vendor's sales. The financing source offers leases or conditional sales contracts to the vendor's customers. The vendor leasing firm substitutes as the captive finance company of a manufacturer or distributor through the extension of leasing to customers, provisions for credit checking, and performance of collections and operational administration. Also known as lease asset servicing or vendor programs.
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