(Rental Payment)

The periodic rental payment to a lessor for the use of assets. Or the lease rate as the implicit interest rate in minimum lease payments. (U.S. Equipment Leasing Association)

The lease term is the fixed non-cancellable term of the lease plus:

all periods covered by bargain renewal options;

all periods for which failure to renew would impose on the lessee a penalty sufficiently large that renewal appears reasonably assured;

all periods covered by ordinary renewal options where the lessee has undertaken to guarantee the lessor’s debt related to the leased property;

all periods covered by ordinary renewal options preceding the date on which a bargain purchase option is exercisable; and

all periods representing renewals or extensions of the lease at the lessor’s option. (KPMG LLP)

A contract in which one party conveys the use of an asset to another party for a specific period of time at a predetermined rate. (U.S. Equipment Leasing Association)

Large Corporation Tax is a federal tax imposed on corporations with capital over $10 million. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)

[See Conditional Sale]

An instalment sale occurs when a vendor transfers ownership and possession to the purchaser immediately. The purchaser agrees to make payments over a period of time. An instalment sale is not a lease. (PricewaterhouseCoopers LLP)

The rate of return on an investment, calculated by finding the discount rate which equals the present value of future cash flows to the initial cost of the investment. (Leasing in Canada [Third Edition], Ralph Selby, FCA, Butterworths, 1999)

The discount rate that, at the inception of the lease, causes the aggregate present value of (a) the lessor’s minimum lease payments excluding executory costs; and (b) the unguaranteed value accruing to the benefit of the lessor to be equal to the fair value of the property at the inception of the lease. (KPMG LLP)

The costs incurred by a lessor directly associated with negotiating and executing a specific leasing transaction (i.e., commissions, legal, documentation). (KPMG LLP)

Risk means a chance of loss.

Speculative Risk – exists when there is a chance of loss and also a chance for profit i.e. gambling at a casino – these risks cannot be insured against.

Pure Risk – exists when there is a chance of loss but no chance of profit i.e..: driving an asset- these risks can be insured against.

Broadly, there are three choices:

(1) Eliminate the risk: implement preventive measures to reduce risk i.e..: fire alarms, sprinklers, seat belts.

(2) Assume the risk: bear the cost of losses as they occur or set aside an amount of money periodically in order to self insure against losses.

(3) Transfer the risk: transfer the risk to someone whose financial capability to handle a loss is greater than your own. This risk transfer comes at a price and is called insurance. (Hunter Keilty Muntz & Beatty)

Premium means the single or periodical payment under a contract of insurance and includes dues, assessments, administration fees paid for the administration or servicing of such contract, and other considerations. (Ontario Insurance Act)