§ 6A-1-203 - Lease distinguished from security interest.
SECTION 6A-1-203
§ 6A-1-203 Lease distinguished fromsecurity interest. – (a) Whether a transaction in the form of a lease creates a lease or securityinterest is determined by the facts of each case.
(b) A transaction in the form of a lease creates a securityinterest if the consideration that the lessee is to pay the lessor for theright to possession and use of the goods is an obligation for the term of thelease and is not subject to termination by the lessee, and:
(1) The original term of the lease is equal to or greaterthan the remaining economic life of the goods;
(2) The lessee is bound to renew the lease for the remainingeconomic 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 theremaining economic life of the goods for no additional consideration or fornominal additional consideration upon compliance with the lease agreement; or
(4) The lessee has an option to become the owner of the goodsfor no additional consideration or for nominal additional consideration uponcompliance with the lease agreement.
(c) A transaction in the form of a lease does not create asecurity interest merely because:
(1) The present value of the consideration the lessee isobligated to pay the lessor for the right to possession and use of the goods issubstantially equal to or is greater than the fair market value of the goods atthe 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 ormaintenance costs;
(4) The lessee has an option to renew the lease or to becomethe owner of the goods;
(5) The lessee has an option to renew the lease for a fixedrent that is equal to or greater than the reasonably predictable fair marketrent for the use of the goods for the term of the renewal at the time theoption is to be performed; or
(6) The lessee has an option to become the owner of the goodsfor a fixed price that is equal to or greater than the reasonably predictablefair market value of the goods at the time the option is to be performed.
(d) Additional consideration is nominal if it is less thanthe lessee's reasonably predictable cost of performing under the leaseagreement if the option is not exercised.
Additional consideration is not nominal if:
(1) When the option to renew the lease is granted to thelessee, the rent is stated to be the fair market rent for the use of the goodsfor the term of the renewal determined at the time the option is to beperformed; or
(2) When the option to become the owner of the goods isgranted to the lessee, the price is stated to be the fair market value of thegoods 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 ofperforming under the lease agreement must be determined with reference to thefacts and circumstances at the time the transaction is entered into.