Leasing Glossary

Advance Rental Payment(s)
The payment or payments made at the initiation of the lease contract (i.e., first rental payment or first and last rental payment.

Assignment of Proceeds
Under an Assignment of Proceeds agreement, the vendor agrees to allow the Lessor to fund the manufacturer's cost of the equipment directly to the manufacturer at the time of funding. The balance of the original equipment invoice, usually representing the dealer's profit and other costs (i.e. shipping, installation, etc.) is paid directly to the dealer by the Lessor.

Commitment Deposit
Synonymous with "earnest money", binder, etc. A deposit required by the Lessor at the time a lease commitment is signed, ranging from 1 to 2% of the equipment cost, or the first rental payment, which holds the leasing line during the commitment period. It is applied to rental on a pro rata basis as the commitment is taken down or returned if the lease is declined.

Commitment Letter
The letter prepared by the Lessor to spell out terms and conditions between Lessee and Lessor for a master lease line of credit.

Dealer Lease Referral Application and Agreement
This simple, one page agreement, provides the Lessor with valuable information on the vendor / dealer for funding purposes. By means of this agreement, the vendor / dealer agrees to pass clear title to the equipment to the Lessor upon delivery, acceptance by the Lessee and funding by the Lessor.

Electronic Funds Transfer (EFT - also referred to as "ACH")
This is a means by which the Lessor will pay the vendor's invoice by wire transfer rather than by check. In other words, at the time of funding the Lessor will wire the invoice amount, less any amount assigned under an Assignment of Proceeds Agreement, directly to the vendor's bank account.

End Position
Pertains to options available to a Lessee at the end of the lease period. Generally, under a True Lease, purchase option is at Fair Market Value, renewal option is at Fair Renewal Value or return of equipment to Lessor. Under a Finance Lease, a pre-arranged amount (nominal or otherwise) will generally be established for the transfer of title at the end of the lease term.

Fair Market Value (FMV)
The value in the open market of the asset at the termination of the lease. A Purchase Option under a True Lease should be at the Fair Market Value at the end of the lease.

Fair Market Renewal Value
The rental payment which is paid monthly for a period of up to one (1) year if the Lessee elects to renew the lease following its initial termination. The value is determined by negotiation between Lessee and Lessor and represents the Fair Market Rental/Renewal Value.

Finance Lease
A financing device whereby a Lessee can acquire title to the asset for a nominal amount or a guaranteed purchase amount. The lease is usually considered a conditional sales contract for tax purposes. Generally, a Finance Lease is noncancelable during the term of the lease; and the end-user is responsible for maintenance, taxes, insurance and other costs of ownership.

Financing Statement (UCC-1)
A standardized form recorded with the Secretary of State and/or County Clerk to perfect a lien under the Uniform Commercial Code by notification to all interested parties. Standard documentation with Finance and True Leases to protect Lessor's interest in the equipment.

Full Payout Lease
A lease in which the cash flows will return the Lessor the full equipment cost plus a satisfactory return over the lease term.

Landlord Waiver
A document prepared by the Lessor to be signed by the Landlord, giving up any rights he may have in the leased equipment at Lessee's place of business. Allows the Lessor to remove the equipment in case of default or at the end of the lease. Protects Lessor in cases in which leased equipment is attached to real property.

Lease
An agreement granting or letting the possession of land, building, machinery, personal property, etc., for a fixed or indeterminate period, for a stated consideration usually known as rent.

Lease Commencement
The Lease Commencement Date shall be the date equipment is accepted by the Lessee as evidenced by Lessee's execution of an Acceptance Certificate.

Lease Proposal
A written agreement between the Lessor and Lessee which outlines the basic terms and conditions of a specific lease transaction. The agreement is generally signed by both parties subject to final credit approval.

Lease Rate
This is the simple interest equivalent interest rate excluding depreciation and residual, if any.

Leasing Line
An amount of funds set aside by the Lessor for a Lessee to use over a commitment period.

Lessee
A party who makes use of property owned by another party (the Lessor) and pays the Lessor, usually in the form of rentals, for that use.

Lessor
Company or leasing entity that is legal owner of the leased equipment.

Level Payments
Equal payments over the term of the Lease.

Master Lease
An open-ended type Lease Agreement under which a Lessee obtains the use of property, and can add additional equipment periodically at rates to be negotiated through the use of "Schedules" under the basic terms of the original Agreement. Eliminates signing new leases as additional equipment is leased.

Net Lease
In a Net Lease, the rentals are payable net to the Lessor. All costs in connection with the use of the equipment are to be paid by the Lessee and are not a part of the rental. For example, taxes, insurance, and maintenance are paid directly by the Lessee.

Personal Property
From a Lessor's standpoint, any type of "leasable" equipment (as opposed to real property).

Security Deposit
A Security Deposit is an advance payment, usually equal to two (2) lease payments, retained by the Lessor for the term of the Lease. If the lease is never finalized for reasons that are not the fault of the Lessor, the Deposit is kept by the Lessor for administrative costs. If any part of the Deposit is remaining at the end of the Lease term and the Lessee has completed all of his / her obligations, the Deposit is returned to the Lessee or can be applied to the Purchase Option, if any, or to any remaining payments.

Take-Down
The point in time when the equipment is delivered, accepted and paid for by the Lessor and the Lessee is "taking down" all or a portion of a lease line.

True Lease
A True Lease is a transaction which qualifies as a lease under the Internal Revenue Code so that the Lessee can claim rental payments as tax deductions and the Lessor can claim tax benefits of ownership such as depreciation.

Uniform Commercial Code (see Financing Statement - UCC1)
A standardized program and method of administering, legalizing and recording lien instruments adopted now by all states except Louisiana.

Usury
Many states have passed laws that limit the interest rate that can be charged on loans - these are called "Usury Laws". Some states (Texas, Arkansas, Florida and Nebraska) have determined that $1.00 buyout leases are also subject to Usury and, as such, leasing companies have either refused to write such leases in these states or require certain addendums or additional documentation.