§12A-1-203. Lease distinguished from security interest.
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Lease Distinguished from Security Interest.
(a)Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.
(b)A transaction creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease not subject to termination by the lessee, and:
(1)the original term of the lease is equal to or greater
than the remaining economic life of the goods;
(2)the lessee is bound to renew the lease for the
remaining economic life of the goods or is bound to
become the owner of the goods;
(3)the lessee has an option to renew the lease for the
remaining economic life of the goods for no additional
consideration or nominal additional consideration upon
compliance with the lease agreement; or
(4)the lessee has an option to become the owner of the
goods for no additional consideration or for nominal
additional consideration upon compliance with the
lease agreement.
(c)A transaction in the form of a lease does not create a security interest merely because:
(1)the present value of the consideration the lessee is
obligated to pay the lessor for the right to
possession and use of the goods is substantially equal
to or is greater than the fair market value of the
goods at the time the lease is entered into;
(2)the lessee assumes risk of loss of the goods;
(3)the lessee agrees to pay, with respect to the goods,
taxes, insurance, filing, recording, or registration
fees, or service or maintenance costs;
(4)the lessee has an option to renew the lease or to
become the owner of the goods;
(5)the lessee has an option to renew the lease for a
fixed rent that is equal to or greater than the
reasonably predictable fair market rent for the use of
the goods for the term of the renewal at the time the
option is to be performed; or
(6)the lessee has an option to become the owner of the
goods for a fixed price that is equal to or greater
than the reasonably predictable fair market value of
the goods at the time the option is to be performed.
(d)Additional consideration is nominal if it is less than the lessee’s reasonably predictable cost of performing under the lease agreement if the option is not exercised. Additional consideration is not nominal if:
(1)when the option to renew the lease is granted to the
lessee, the rent is stated to be the fair market rent
for the use of the goods for the term of the renewal
determined at the time the option is to be performed,
or
(2)when the option to become the owner of the goods is
granted to the lessee, the price is stated to be the
fair market value of the goods determined at the time
the option is to be performed.
(e)The "remaining economic life of the goods" and "reasonably predictable" fair market rent, fair market value, or cost of performing under the lease agreement must be determined with reference to the facts and circumstances at the time the transaction is entered into. Added by Laws 1961, p. 73, § 1-203. Amended by Laws 2005, c. 139, § 10, eff. Jan. 1, 2006.