A specific classification of a lease for accounting purposes. The classification of the lease will determine how the lease is to be accounted for. A provision in the lease allowing the lessee to purchase the leased property for its fair market value, but not exceeding a certain amount. The advantage of the cap is that the lessee will know the maximum payment required to purchase the leased property. Certificate of Acceptance A written verification by the lessee that they have received the property to be leased.
Most leases begin after the date stated on the certificate of acceptance.
Coterminous Two or more leases that end at the same time. A guarantee by one corporation to pay the lease obligations of another corporation. If a lessee does not comply with the terms of the lease, a default occurs. Generally, after a default, the lessor can exercise all of its rights under the lease to repossess the property and seek money damages. Direct Finance Lease Same as a capital lease except this accounting classification only applies to a lessor.