ACRS Life: Under ACRS, equipment fell into classifications defined in terms of statutory life - 3, 5, 10, or 15 years. This classification determined the period over which the cost of the asset may be recovered (depreciation).

Alternative Minimum Tax ("AMT" or "Minimum Tax"): Introduced by the Tax Reform Act of 1986, this new form of tax makes it more difficult for both corporate and non-corporate taxpayers to avoid tax through the use of certain tax benefits, which are known as "tax preference items".

Advance Rent: A general term to describe any rent which precedes the base lease term and base lease rent.

Assignment: A transfer of legal title. In leasing, a transfer of the lessor's interest in a lease and the leased equipment to a transferee such as a financial institution or any entity assuming the lessor's position. A lessee is usually prohibited from assigning its interest in a lease without the lessor's consent. Also used in leveraged leasing to describe transfers of the first security interest in a lease and lease rentals to a security trustee for leveraged debt holders.

Bargain Purchase Option: A provision which allows the lessee, at its option, to purchase the leased asset during or at the conclusion of a lease for a price which is sufficiently lower than the expected fair market value at the time such option becomes exercisable so that the exercise of the option appears, at the inception of the lease, to be reasonably assured.

Base Renewal Option: A provision which allows the lessee, at its option, to renew the lease for a sufficiently lower than the expected fair rental for the property at the time the option appears, at the inception of the lease, to be reasonably assured.

Base Rent: Rental paid during the base term of the lease.

Base Term: The basic term of the lease used by the lessor in computing payout and relied upon by the lessee as the minimum time period during which the lessee will have the use and custody of the equipment.

Base Term Commencement Date: The date on which the base term of the lease commences.

Broker: An investment banker, leasing company, finance company, or individual who solicits or finds companies who wish to lease equipment, but has no intention of taking the lessor position. The broker then finds a lessor and collects a fee for the service.

Capital Lease: Under FASB 13, a lease is classified and accounted for by a lessee as a "Capital Lease" if it meets any of the following criteria:

Certificate of Delivery & Acceptance: A document whereby the lessee acknowledges that the equipment to be leased has been delivered to him, is acceptable to him, and has been manufactured or constructed in accordance with specifications.

Conditional Sale Lease: A lease which in substance is a conditional sale (sometimes called a hire-purchase agreement, money over money lease or a lease intended as security).

Default: An event defined in a lease agreement as a default, such as a failure to pay rent or perform some obligation required under the terms of the lease.

Depreciation: A reasonable allowance for exhaustion, wear and tear, and obsolescence of equipment used in a trade or business. As a periodic item of expense, it allows the owner of the equipment to recover the cost of the equipment over its useful life. Depreciation deductions taken on the owner's tax return are sometimes referred to as "tax depreciation". Depreciation expenses listed in the owner's financial statements are sometimes referred to as "book depreciation".

Economic Life of Leased Property: The estimated period during which the property is expected to be economically usable by one or more users, with normal repairs and maintenance, for the purpose for which it was intended at the inception of the lease.

Estimated Residual Value of Leased Property: The estimated fair value of the property at the end of the lease term.

Fair Market Purchase Option: An option to purchase leased property at the end of a lease is its then fair market value.

Fair Market Renewal Option: An option given to the lessee to extend the lease term by paying the fair market rental for the equipment during the renewal period. Fair market rental is determined at the expiration of the primary lease term by agreement or, failing that, by appraisal.

FASB 13: Technically: Statement of Financial Accounting Standards No. 13, Account for Leases; Financial Accounting Standards Board, Stamford, Connecticut, November 1976. Sets formal financial accounting standards on accounting for leases.

Full Service Lease: This type of lease obligates the lessor to provide maintenance, repair and insure the leased agreement. The lessor also pays the property taxes. Full service leases are nearly always true leases in which the lessor owns the equipment at the end of the lease.

Guideline Lease: A tax-oriented lease which compiles with all of the IRS guidelines for a "true" lease as set forth in Rev. Proc 75-21, 75-28, 76-30 and 79-48.

Hell-or-High Water Clause: A clause in a lease which 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. The term is derived from provisions which are common in unconditional long term leases of ships (bareboat charters).

Independent Lessor: Any leasing company investing in leases; also brokers without funds to invest in leases sometimes prefer to cal themselves "independent lessors" rather than "brokers".

Interim Rent: Daily rental accruing from delivery, acceptance and/or funding until a later starting date for a basic term. Often used when a number of items of equipment to be leased under a single lease are delivered over a period of time.

Interim Term: The term of a lease between delivery of equipment and start of the base term. This sometimes occurs where there are a number of deliveries of equipment at various times to be later combined into one lease.

Lease Intended as Security: A lease in which the lessee is considered owner for both legal and federal income tax purposes. A conditional sale or installment purchase for income tax purposes.

Lease Line: A lease line of credit similar to a bank line of credit which allows a lessee to add equipment to a lease, as needed, under the same basic terms and conditions, without negotiating a new lease.

Lease Term: The fixed, non-cancelable term of a lease. Includes, for accounting purposes, all periods covered by fixed-rate renewal options which for economic reasons appear likely to be exercised at the inception of the lease. Includes for tax purposes, all periods covered by fixed-rate renewal options.

Lien: A security interest on property to evidence a debt.

Master Lease: A continuing lease arrangement whereby additional equipment can be made subject to lease contract from time to time merely by describing that equipment in a new schedule executed by the parties. To be contrasted with a lease contract that evidences a one-time transaction involving a specific unit or units of equipment.

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, property taxes, insurance and maintenance are paid directly by the lessee. Most capital leases and direct financing leases are net leases.

Participating Agreement: An agreement between the owner trustee, the lenders, the equity participants, the manufacturer, and the lessee which spells out the obligations of the parties under a leveraged lease. Also called "financing agreement".

Pay-Out-Lease: A lease in which the lessor expects to recover its investment, plus interest, over the life of the lease from any or all of the following: rentals, cash flow from tax benefits and a modest expectation of a residual value.

Purchase Option: An option to purchase leased property at the end of the lease term. In order to protect the tax characteristics of a true lease, an option to purchase leased equipment from a lessor by a lessee which is granted at the beginning of a lease cannot be at a price less than its fair market value at the time the right is exercisable.

Put Option: The requirement to purchase equipment at a particular time and at a predetermined price. In a lease transaction, this is a lessor's right to force the lessee (or some third-party) to purchase the equipment at the end of the lease term. IRS guidelines prohibit put options in tax-oriented leases.

Sale and Leaseback: A transaction which involves the sale of equipment by the owner and a lease of the same equipment back to the original owner who continues to use the equipment.

Sales-Type Lease: A lease in which the lessor is also the vendor (manufacturer or distributor) of the equipment.

Step Rentals: Rentals which change during the lease term, usually from lower at the beginning of the lease to higher during the later period of the lease. In order to avoid level payment provisions of the IRC, annual rentals under a true lease can not vary upwards or downwards more than 10% from the average annual rentals during the lease term, unless tied to an index or floating rate debt or some reason other than tax avoidance.

Stipulated Loss Value: A schedule included in a lease which states the agreed value of equipment at various times during the terms of the lease, and establishes the liability of the lessee to the lessor in the event the leased equipment is lost or rendered unusable during the lease term due to a casualty loss.

Sublease: A transaction in which leased property is released by the original lessee to a third party, and the lease agreement between the two original parties remains in effect.

Tax-Oriented Lease: A true lease for Federal tax purposes which allows the lessor to claim the tax benefits on the leased equipment.

Termination Value: The contracted minimum amount that the lessor must receive as proceeds from the sale of the equipment if the lessee elects to terminate the lease before the expiration of its full term.

UCC: The Uniform Commercial Code which has been adopted by most states to govern commercial transactions.

UCC Financing Statement: A document filed with the Secretary of State(and sometimes with the county) to provide public notice of a security interest in personal property.

Useful Life: The period of time during which an asset will have economic value and be useable. The useful life of an asset is sometimes called the economic life of the asset. To qualify as a true lease, the leased property must have a remaining useful life of 20 percent of the original estimated useful life of the leased property at the end of the lease term, and at least a life of one year.

Vendor Leasing: Used to describe vendor leases offered by a manufacturer, dealer or a third party leasing company under a working relationship between the third party leasing company and the manufacturer or dealer.