Leases

摘要

The "true" lease/disguised secured transaction determination impacts significant rights of the putative lessor and lessee. Courts making this determination are called upon to interpret U.C.C. section 1-203, which generally provides that the distinction between a true lease and a disguised security interest be "determined by the facts of each case." As stated in the Official Comment to section 1-203, the primary focus is on the economics of the transaction, and the intent of the parties is not a factor in determining whether a transaction is a lease or security interest. Courts apply two tests under section 1-203 to distinguish a true lease from a security interest. The first test is often referred to as the "bright line" test and is set forth in section l-203(b). To meet this test, the lessee cannot have the right to terminate the lease agreement, and the transaction has to meet at least one of the four criteria in section l-203(b). If the lessee cannot terminate the agreement and any of the four criteria is met, the transaction creates a security interest. If the "bright line" test is not met, the lease may still be deemed a secured transaction under the "economic realities" test, which requires an examination of the totality of the economics of the transaction to determine whether the lessor has a meaningful reversionary interest in the leased goods. This determination is made as of the time that the parties entered into the transaction.