8.1A-203 - A-203. Lease distinguished from security interest.
§ 8.1A-203. Lease distinguished from security 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 security interest if theconsideration that the lessee is to pay the lessor for the right topossession and use of the goods is an obligation for the term of the leaseand is not subject to termination by the lessee, and:
(1) the original term of the lease is equal to or greater than the remainingeconomic life of the goods;
(2) the lessee is bound to renew the lease for the remaining economic life ofthe goods or is bound to become the owner of the goods;
(3) the lessee has an option to renew the lease for the remaining economiclife of the goods for no additional consideration or for nominal additionalconsideration upon compliance with the lease agreement; or
(4) the lessee has an option to become the owner of the goods for noadditional consideration or for nominal additional consideration uponcompliance with the lease agreement.
(c) A transaction in the form of a lease does not create a security interestmerely because:
(1) the present value of the consideration the lessee is obligated to pay thelessor for the right to possession and use of the goods is substantiallyequal to or is greater than the fair market value of the goods at the timethe 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 thegoods;
(5) the lessee has an option to renew the lease for a fixed rent that isequal to or greater than the reasonably predictable fair market rent for theuse of the goods for the term of the renewal at the time the option is to beperformed; or
(6) the lessee has an option to become the owner of the goods for a fixedprice that is equal to or greater than the reasonably predictable fair marketvalue of the goods at the time the option is to be performed.
(d) Additional consideration is nominal if it is less than the lessee'sreasonably predictable cost of performing under the lease agreement if theoption is not exercised. Additional consideration is not nominal if:
(1) when the option to renew the lease is granted to the lessee, the rent isstated to be the fair market rent for the use of the goods for the term ofthe 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 thelessee, the price is stated to be the fair market value of the goodsdetermined at the time the option is to be performed.
(e) The "remaining economic life of the goods" and "reasonablypredictable" fair market rent, fair market value, or cost of performingunder the lease agreement must be determined with reference to the facts andcircumstances at the time the transaction is entered into.
(1964, c. 219, § 8.1-201 (37); 1973, c. 509; 1984, c. 613; 1991, c. 536;1992, c. 693; 2000, c. 1007; 2003, c. 353.)