CAPITAL LEASE

[See Finance Lease; compare Operating Lease]

An accounting term meaning a lease which transfers substantially all of the risks and benefits of ownership of the leased property to the lessee. The criteria set out in the Canadian Institute of Chartered Accountants handbook provide that a lease will be treated as a capital lease if it meets any of the following criteria:

title passes automatically at the end of the lease term;

the lease contains a bargain purchase option (i.e. less than fair market value)

the lease term is greater than 75% of the estimated economic life of the leased property; or

the present value of the minimum lease payments is greater than 90% of the leased property’s fair market value at the inception of the lease.
(Blake, Cassels & Graydon LLP)

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