Glossary of Common Leasing Terms

Operating Lease

A lease which is treated as a true lease (as opposed to a loan) for book accounting purposes. As defined in FASB 13, an operating lease must have all of the following characteristics:

1. A lease term that is less than 75% of the estimated economic life of the equipment;
2. A present value of lease payments that is less than 90% of the equipment's fair market value;
3. The lease cannot contain a bargain purchase option (i.e., less than the fair market value);
4. The ownership is retained by the lessor during and after the lease term.