Definition of True lease

True lease

A contract that qualifies as a valid lease agreement under the Internal Revenue code.

Break-even lease payment

The lease payment at which a party to a prospective lease is indifferent between
entering and not entering into the lease arrangement.

Capital lease

A lease obligation that has to be capitalized on the balance sheet.

Cost of lease financing

A lease's internal rate of return.

Direct lease

lease in which the lessor purchases new equipment from the manufacturer and leases it to the
lessee.

Double-dip lease

A cross-border lease in which the disparate rules of the lessor's and lessee's countries let
both parties be treated as the owner of the leased equipment for tax purposes.

Financial lease

Long-term, non-cancelable lease.

Full-payout lease

See: financial lease.

Full-service lease

Also called rental lease. lease in which the lessor promises to maintain and insure the
equipment leased.

Lease

A long-term rental agreement, and a form of secured long-term debt.

Lease Rate

The payment per period stated in a lease contract.

Leveraged lease

A lease arrangement under which the lessor borrows a large proportion of the funds needed
to purchase the asset and grants the lender a lien on the assets and a pledge of the lease payments to secure the
borrowing.

Limitation on sale-and-leaseback

A bond covenant that restricts in some way a firm's ability to enter into
sale and lease-back transactions.

Lease Rate

The payment per period stated in a lease contract.

Net lease

A lease arrangement under which the lessee is responsible for all property taxes, maintenance
expenses, insurance, and other costs associated with keeping the asset in good working condition.

Operating lease

Short-term, cancelable lease. A type of lease in which the period of contract is less than the
life of the equipment and the lessor pays all maintenance and servicing costs.

Rental lease

See:full-service lease.

Safe harbor lease

A lease to transfer tax benefits of ownership (depreciation and debt tax shield) from the
lessee, if the lessee could not use them, to a lessor that could use them.

Sale and lease-back

Sale of an existing asset to a financial institution that then leases it back to the user.
Related: lease.

Sales-type lease

An arrangement whereby a firm leases its own equipment, such as IBM leasing its own
computers, thereby competing with an independent leasing company.

True interest cost

For a security such as commercial paper that is sold on a discount basis, the coupon rate
required to provide an identical return assuming a coupon-bearing instrument of like maturity that pays
interest in arrears.

Leasehold improvements

The cost of improvements made to property that the company leases.

Capital lease

A lease in which the lessee obtains some ownership rights over the asset
involved in the transaction, resulting in the recording of the asset as company property
on its general ledger.

Leasehold improvement

This is any upgrade to leased property by a lessee that will be
usable for more than one year, and which exceeds the lessee’s capitalization limit.
It is recorded as a fixed asset and depreciated over a period no longer than the life
of the underlying lease.

Operating lease

The rental of an asset from a lessor, but not under terms that would
qualify it as a capital lease.

lease

Long-term rental agreement.

Accounting and Auditing Enforcement Release (AAER)

Administrative proceedings or litigation releases that entail an accounting or auditing-related violation of the securities laws.

Litigation Release

Official SEC record of a settlement or a hearing scheduled before a civil
court judge of an alleged violation of one or more sections or rules of the securities laws. Typically,
a litigation release entails a more serious violation of the securities laws than an administrative
proceeding.

Sales-type Lease

lease accounting used by a manufacturer who is also a lessor. Up-front gross
profit is recorded for the excess of the present value of the lease payments to be received across
a lease term over the cost to manufacture the leased equipment. Interest income also is recognized
on the lease receivable as it is earned over the lease term.

Capital Lease

One where substantially all of the benefits and risks of ownership are transferred to the lessee. It must be reflected on the company's balance sheet as an asset and corresponding liability.

Financial Lease

lease in which the service provided by the lessor to the lessee is limited to financing equipment. All other responsibilities related to the possession of equipment, such as maintenance, insurance, and taxes, are borne by the lessee. A financial lease is usually noncancellable and is fully paid out amortized over its term.

Lease Payment

The consideration paid by the lessee to the lessor in exchange for the use of the leased equipment/property. Payments are usually made at fixed intervals.

Operating Lease

One where the risks and benefits, as well as ownership, stays with the lessor.

Sale and Leaseback

An agreement in which the owner of a property sells that property to a person or institution and then leases it back again for an agreed period and rental.

Lease (Credit Insurance)

Contract granting use of real estate, equipment or other fixed assets for a specified period of time in exchange for payment. The owner or a leased property is the lessor and the user the lessee.

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