Private K- 12, School - Glossary
Industries develop terminology that is unique to their particular industry group. To gain an understanding of the industry, it essential to understand its terminology. While schools will always be available to take the lead role on all leasing issues and questions, we believe that knowledge and information are the keys to success.

Before getting into basic leasing terminology -- What is a Lease?

A lease is a written contract between a lessee and a lessor. The lessor, as owner of the leased property, gives the lessee the right to use the leased property for a period of time and, in exchange, the lessee agrees to make lease payments to the lessor. A Lease is an asset-based financing product where the leased property typically serves as the only collateral for the transaction. In a traditional bank loan to acquire an asset, the bank generally will secure its loan with something greater than merely the asset itself (e.g., a blanket lien on all company-owned assets).

 

Leasing Terms THIS COLOR = No terms in the Section

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

Select the first letter of the word in question from the list above to jump to appropriate section of the glossary. Here's a listing of frequently used basic leasing terminology:

 A
Acceptance Certificate
When leased property is delivered and installed, the lessee (since it is in physical possession of, and using, the leased property) will acknowledge its acceptance and authorize the lessor, in writing, to pay the supplier. The lessee's authorization to pay the supplier is indicated on an Acceptance Certificate form.
B
Balloon Payment
A mandatory payment to be made by the lessee at the expiration of the initial term of the lease transaction. Use of a balloon payment in a lease will have the effect of reducing the periodic lease payment "versus" the periodic lease payment on a $1.00 Buyout lease.
Bargain Purchase Option
A provision in a lease giving the lessee the right to purchase the subject leased property for a price that is less than its anticipated fair market value at the expiration of the initial term.
Broker
A Lease Broker is an intermediary between the lessee and lessor. The Lease Broker seeks to arrange a lease transaction, with sufficient mark-up or spread, and then place the lease transaction with a lessor for a fee. A Lease Broker will oftentimes present himself or herself (to a lessee or supplier) as a lessor. Lease Brokers are typically small-time operators and oftentimes work out of their homes (dialing-for-dollars). A typical Lease Broker has little, if any, capital. Our words of caution would be, "know who you're doing business with and think twice before giving a Lease Broker any money."
C
Coterminous
Two or more leases that reach the expiration of their initial term at the same time.
Cross Corporate Guaranty
A guarantee by one corporation to fulfill all of the lease obligations of another corporation (lessee), should the lessee default under the subject lease.
F
Fair Market Value ("FMV") Purchase Option
FMV is the price a willing buyer (who is neither a used property dealer nor reseller) would pay for the leased property in an arm's length transaction to a willing seller under no compulsion to sell. FMV shall be determined on the basis that the leased property has been properly maintained; the leased property is assumed to be installed and/or in full service and valued on an installed basis; and the cost of removal of the leased property is not deducted from the valuation.
FAS #13
This is the Statement of Financial Accounting Standards No. 13 entitled "Accounting for Leases". This Statement sets forth the accounting standards for how parties to a leasing transaction should account for such transaction.
FASB
This is the Financial Accounting Standards Board ("FASB"). One responsibility of the FASB is to promulgate Statements of Financial Accounting Standards that form the basis for United States generally accepted accounting principles.
FAZ-BEE
See FASB.
Financial Statements
Financial statements are financial reports that reflect a company's financial performance over a period of time and financial position as of a point in time. Financial statements may be Audited, Reviewed/Compiled or Internally Prepared by the company. Audited financial statements are of a higher quality, as the company's independent accountants (Certified Public Accountants) have performed a thorough examination of the company's books and records, including testing of internal controls. The purpose of the independent accountants audit examination is to render a report where they will express their opinion on the financial statements. Audited financial statements include the Auditor's Report, a Balance Sheet, Income Statement, Statement of Cash Flows and Footnotes.
I
Independent 3rd Party Lessor
An Independent 3rd Party Lessor is a lessor that is independent as to the supplier/vendor/manufacturer ("Supplier"). After the end-user/lessee makes its own independent selection of the property that will be leased, the Independent 3rd Party Lessor and lessee will negotiate the terms of the leasing contract. The Independent 3rd Party Lessor is solely the source of leasing services.
Investment Grade Credit
An investment grade credit is a company that obtains a high rating from one of the recognized credit agencies - such as Standard & Poor's.
L
Lease Documents

The lease documents are all of the written documents that the parties have jointly negotiated and mutually agreed-upon and, collectively, form the lease contract. Typically, the collective lease contract will be comprised of:

1.) Lease Agreement
  2.) Lease Schedule
  3.) Addenda, if any, to Lease Agreement and/or Lease Schedule
  4.) Letter Agreement(s)
  5.) Delivery Order and Acceptance Certificate
  6.) Casualty Schedule
  7.) UCC-1 Financing Statements
  8.) Certificate of Incumbency and Authority

The Lease Agreement functions as a master lease agreement, which allows for the parties to easily attach additional Lease Schedules in the future.
Lease Rate Factor
This is the percentage which when multiplied by the total leased property cost yields the net periodic rental payment amount - e.g., .03000 (x) $100,000 = $3,000 net monthly lease payment. In the event the total leased property cost is either not exactly known or changes, having the lease rate factor allows for a quick recalculation of the net monthly lease payment.
Lease Term
Defined as the fixed initial term of the lease. Generally, depending on a lessee's creditworthiness, software is leased over 24, 36 or 48 months.
Lease Types

Under FAS #13 there are two lease types for a lessee - (1) Capital Leases and (2) Operating Leases. FAS #13 sets forth four criteria for distinguishing between a Capital Lease or Operating Lease - at the inception of the lease, if a lease meets one or more of the following four criteria, the lease shall be classified as a Capital Lease by the lessee. Otherwise, the lease shall be classified as an Operating Lease.

a. The lease transfers ownership of the leased property to the lessee by the end of the lease term.
  b. The lease contains a bargain purchase option.
  c. The lease term is equal to 75% or more of the estimated economic life of the leased property.
  d. The present value at the beginning of the lease term of the minimum lease payments equals or exceeds 90% of leased property's then fair value. A lessee shall compute the present value of the minimum lease payments using his incremental borrowing rate, unless (i) it is practicable for him/her to learn the implicit rate computed by the lessor and (ii) the implicit rate computed by the lessor is less than the lessee's incremental borrowing rate. If both of these conditions are met, the lessee shall use the implicit rate.
M
Middle Market Credit
A lessee without an investment grade credit rating, but generally with revenues greater than $50 million annually.
O
Off-Balance-Sheet Lease
A leasing transaction is considered off-balance-sheet to the lessee when the lease meets the Operating Lease classification under FAS #13. Under FAS #13 guidelines, an Operating Lease requires footnote disclosure only and the lessee will record rent expense on its Income Statement.
P
Prime Rate
The rate of interest that banks charge their most creditworthy customers.
Purchase Option
An option granted to the lessee to purchase the leased property at the expiration of the applicable lease term (e.g., FMV Purchase Option).
S
Sale-Leaseback
A sale-leaseback transaction is a lease transaction wherein the lessee sells property (that the lessee owns) to the lessor and the lessor, in turn, leases the property back to the lessee.
Supplier
The entity that provides the leased property to the end-user/lessee. A Supplier can be the manufacturer, vendor, value-added-remarketer, integrator, or other.
V
Vendor Leasing Group
A Vendor Leasing Group or Vendor Lessor are a vendor's leasing operations - and are often referred to as a vendor's captive leasing program. A vendor's captive leasing program is seeking to capture, through leasing, incremental sales that it would not otherwise capture. Vendor-lease programs are generally tailored to higher risk credit profiles, higher rates, and afford less flexibility. A Vendor Lessor, by definition, is not an Independent 3rd Party Lessor.