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Accelerated Cost Recovery System (ACRS) (Modified)
The Tax Reform Act of 1986 established the modified ACRS tax appreciation system prescribing depreciation methods for each ACRS class in lieu of statutory tables. Equipment is assigned among 3, 5, 7, 10. 15. or 20 year classes, depending on ADR lives'.

Advance Lease Payments
One or more lease payments required to be paid to the lessor at the beginning of the lease term. Lease structures commonly require at least one payment to be made in advance.

All-Risk Insurance
An insurance policy that covers an insured against loss from any peril other than those specifically excluded by the terms of the policy.

Alternative Minimum Tax (AMI)
An alternative, separate tax calculation based on the taxpayer's regular taxable income, increased by the taxpayer's preferences for the year. The resulting amount is called the alternative minimum taxable income (AMTI). After certain exemptions and offsets, the taxpayer determines its AMT and is required to pay the larger of the regular tax or alternative minimum tax. Among the preferences that can increase the taxpayer's AMTI is the accelerated portion of depreciation, thereby making it more likely that a taxpayer that buys equipment may be subject to the AMT rather than to regular tax.

Bargain Purchase Option
A lease provision allowing the lessee to purchase the leased property at the end of the lease term for a price that is sufficiently lower than the expected fair market value of the property.

Big-Ticket
A market segment, generally dominated by leveraged leases, represented by lease financings over S2 million.

Broker
A company or person who arranges, for a fee. transactions between lessees and lessors of an asset.

Business Lease
A lease in which the lessee has entered into the lease transaction for business and commercial purposes; it is also called commercial lease.

Capital Lease
From a financial reporting perspective, a lease that has the characteristics of a purchase agreement, and also meets certain criteria established by the Financial Accounting Standards Board Statement No. 13 (FASB 13). Such a lease is required to be shown as an asset and a related obligation on the balance sheet.

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.

Closed-End-Lease
A lease that does not contain a purchase or renewal option, thereby requiring the lessee to return the equipment to the lessor at the end of the initial lease term.

Co-Lessee
An additional lessee to a lease. The lease will usually provide that the co-lessee is jointly and severally liable on the lease with the lessee.

Commercial Lease
A lease in which the lessee has entered into the lease transaction for business or commercial purposes; it is also called a business lease.

Conditional Sales Contract
An agreement for the purchase of an asset in which the lessee is treated as the owner of the asset for federal income tax purposes. This entitles the lessee to the tax benefits of ownership, such as depreciation, but the lessee does not become the free and clear owner of the asset until all terms and conditions of the agreement have been satisfied.

Direct Financing Lease (Direct Lease)
A non-leveraged lease by a lessor (not a manufacturer or dealer) in which the lease meets any of the definitional criteria of a capital lease, plus certain additional criteria.

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

Effective Lease Rate
The effective rate (to the lessee) of cash flows resulting from a lease transaction. To compare this rate with a loan interest rate, a company must include in the cash flows any effect the transactions have on federal tax liabilities.

End-Of-Term Options
Options stated in the lease agreement that give the lessee flexibility in its treatment of the leased equipment at the end of the lease term. Common options include purchasing the equipment, renewing the lease or returning the equipment to the lessor. Options are sometimes given as an amendment to the lease documents and are not made part of the actual lease document.

Equity Participant
The owner participant, trustor owner, or grantor owner.

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.

Fair Market Purchase Option
An option to purchase leased property 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.

Fair Market Value
The value of a piece of equipment if the equipment were to be sold in a transaction determined at arm's length, between a willing buyer and a willing seller, for the equivalent property and under similar terms and conditions. Simply, the actual market value of the leased asset.

Finance Lease (See Single Investor Lease)
Typically, a finance lease is a full-payout, noncancellable agreement, in which the lessee is responsible for maintenance, taxes, and insurance.

Financing Statement
A notice of security interest filed under the Uniform Commercial Code (UCC). Generally filed with the State's Secretary of State and/or the appropriate county office.

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.

Full-Service Lease
A lease that includes many additional services such as maintenance, insurance and property taxes that are paid by the lessor, the cost of which is built into the lease payments.

Funding Sources
A party who provides financing for a lease transaction. The term is frequently used by brokers in referring to lessors, but it can also be used by lessors in referring to those parties who provide lessors with the funds lessors use to purchase equipment.

Guarantor
One who is obligated on a guaranty agreement.

Guideline Lease
A lease written under criteria established by the IRS to determine the availability of tax benefits to the lessor.

Hell-or-High-Water Clause
A clause in a lease that reiterates the unconditional obligation of the lessee to pay rent for the entire term of the lease, regardless of any event affecting the equipment or any change in the circumstances of the lessee.

Indemnity Clause
A clause in which the lessee indemnifies the lessor from loss of tax benefits.

Indenture of Trust (Indenture)
An agreement between the owner trustee and the indenture trustee: The owner trustee mortgages the equipment and assigns the lease and rental payments under the lease as security for amounts due to the lenders. Same as a security agreement or mortgage.

Independent Lessor
A type of leasing company that is independent of any one manufacturer, and, as such, purchases equipment from various unrelated manufacturers or dealers. The equipment is then leased to the end-user or lessee. This type of lessor may also be called a third-party lessor.

Landlord Waiver
A document in which a landlord acknowledges that certain property on its tenant's premises is owned by a third party (the lessor) and is leased to the tenant and in which a landlord agrees to recognize and not interfere with the lessor's rights respecting the lessor's property.

Lease
A transaction in which use and possession but not title to tangible personal property is transferred for a consideration.

Lease Agreement
The contractual agreement between the lessor and the lessee that sets forth all the terms and conditions of the lease.

Lease Broker
An entity that provides one or more services in the lease transaction for its own portfolio. Such services include finding the lessee, working with the equipment manufacturer or dealer, securing debt financing for the lessor to use in purchasing the equipment and locating the ultimate lessor or equity participant in the lease transaction. The lease broker is also referred to as a packager or syndicator.

Lease Line
1. A pre-approved amount of borrowing allowed a lessor by a lessor's financier. The lease line is used for acquiring equipment for lease and is not used for financing a lessor's operational expenses.
2. A pre-approved amount of leasing allowed a lessee by a lessor.

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

Lease Payment
The periodic payment made during the lease term. Such payments are usually of an even amount but it is not uncommon for a lease to have "gaps" in the payment amount, or to be otherwise contoured to fit, for example, the seasonal fluctuations of a lessee's income. Generally, leasing may provide for more creativity in this regard than a loan.

Lessee
The user of the equipment being leased.

Lessor
The part 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 is entitled to the rentals.

Leveraged Lease
In this type of lease, the lessor provides an equity portion (usually 20 to 40 percent) of the equipment cost and lenders provide the balance on a nonrecourse debt basis. The lessor receives the tax benefits of ownership.

Loss Payee
A party entitled to receive proceeds from an insurance settlement arising in connection with a covered casualty or loss.

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

Middle Market
A market segment generally represented by financings under 2 million and dominated by single investor leases.

Mortgagee's Waiver
A document in which a mortgagee acknowledges that a certain property on its mortgagor's premises is owned by a third party (the lessor) and is leased to the mortgagor and in which the mortgagee agrees to recognize and not interfere with the lessor's right respecting its property.

Municipal Lease
A conditional sales contract disguised in the form of a lease available only to municipalities, in which the interest earnings are tax-exempt to the lessor.

Net Lease
A lease in which all costs in connection with the use of equipment, such as maintenance, insurance and property taxes, are paid for separately by the lessee and are not included in the lease rental paid to the lessor.

Nonrecourse Loan
In a leveraged lease, the lenders cannot look to the lessor for repayment. The lender's only recourse is to the lessee and, therefore, the lessee's credit rating is of prime importance.

Open-End Lease
A lease in which the lessee guarantees the amount of the future residual value to be realized by the lessor at the end of the lease. If the equipment is sold for less than the guaranteed value, the lessee must pay the amount of any deficiency to the lessor. This lease is referred to as open-end because the lessee does not know its actual cost until the equipment is sold at the end of the lease term.

Operating Lease
From a financial reporting perspective, a lease that has the characteristics of a usage (rental) agreement and also meets certain criteria established by the FASB. Such a lease is not required to be shown on the balance sheet of the lessee. The term is also used to refer to leases in which the lessor has taken a significant residual position in the lease pricing and, therefore, must salvage the equipment for a certain value at the end of the lease term in order to earn its rate of return. The criteria for meeting FASB 13 classification of an operating lease are:
1. Title for the equipment does not automatically transfer to the lessee during, or by the end of, the lease term.
2. There is no bargain purchase price.
3. The non-cancelable lease term is lesser than 75% of the asset's economic life.
4. The present value of the minimum lease payments, discounted at the lessor's interest rate implicit in the lease, is less than 90% of the leased asset's FMV.

Option To Purchase
A right to purchase property at a future date: a call.

Packager
The leasing company, investment banker, or broker who arranges a leveraged lease.

Payments In Advance
A payment stream in which the lease payment is due at the beginning of each period during the lease.

Payments in Arrears
A payment stream in which the lease payment is due at the end of each period during the lease.

Payoff
The amount which will retire a debt or other obligation at any given point in time. The term has commonly been used in reference to both loans and non-cancelable leases.

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

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.

Put Option
An option in a lease in which the exercise of the option is at the lessor's, not the lessee's, discretion.

Residual
The value of the lease property at the end of the lease term as estimated at the time the lease is executed; term value. Although the terms "residual value" or "term value" are sometimes used in reference to the actual value of the property at the conclusion of the term, the term "realized value" is the more commonly used and more appropriate term for the actual value of the property at the conclusion of the lease term.

Residual Value
The value of an asset at the conclusion of a leaase.

Sale-Leaseback
A transaction that involves the sale of equipment to a leasing company and a subsequent lease of the same equipment back to the original owner, who continues to use the equipment.

Sales-Type Lease
A lease by a lessor who is the manufacturer or dealer, in which the lease meets the definitional criteria of a capital lease or direct financing lease.

Single Investor Lease (See Full Payout or Finance Lease)
A tax-oriented lease whereby the lessor achieves its desired rate of return via a combination of the rental payments, depreciation, and the fair market value of the equipment at the end of the original lease term. Because of the value of the tax benefit, the rental payments will be lower than for a finance lease.

Small-Ticket Leasing
Transactions under 100,000, typically using conditional sale leases or single investor true leases.

Tax Lease
A lease wherein the lessor recognizes the tax incentives provided by the tax laws for investment and ownership of equipment. Generally, the lease rate factor on tax leases is reduced to reflect the lessor's recognition of this tax incentive

Terminal Rental Adjustment Clause (TRAC)
A lessee guaranteed residual value for vehicle leases (automobiles, trucks or trailers), the inclusion of which will not, in and of itself, disqualify the tax lease status of tax-oriented vehicle leases.

Third Party Lessor
An independent leasing company, or lessor, that writes leases involving three parties:
(1) the unrelated manufacturer or dealer,
(2) the independent lessor and
(3) the lessee.

TRAC Lease
A motor vehicle lease with a terminal rental adjustment clause (i.e., an open-end lease) which meets the requirements of section 210 of TEFRA (as amended by TRA).

True Lease
Another term for tax lease where, for IRS purposes, the lessor qualifies for the tax benefits of ownership and the lessee is allowed to claim the entire amount of the lease rental as a tax deduction.

Trustee
A bank or trust company that holds title to or a security interest in leased property for the benefit of the lessee, lessor, and/or creditors of the lessor. A leveraged lease often has two trustees: an owner trustee and an indenture trustee.

UCC
Uniform Commercial Code, a code of commercial law enacted in all states.

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 of credit checking, and performance of collections and operational administration. Also known as lease asset servicing or vendor programs.

Venue
The physical location, or specifically the court, which will hear a legal dispute between parties.