Legal Dictionary of Pakistan

finance lease

A fixed-term lease used by a business to finance capital equipment. ( The lessor's service is usu. limited to financing the asset, and the lessee pays maintenance costs and taxes and has the option of purchasing the asset at lease-end for a nominal price. Finance leases strongly resemble security agreements and are written almost exclusively by financial institutions as a way to help a commercial customer obtain an expensive capital item that the customer might not otherwise be able to afford. UCC § 2A-103(1)(g). - Also termed full payout lease "By carving out the 'finance lease' for special treatment, the drafters of Article 2A have recognized a distinct species of lease that is written almost exclusively by financial institutions and - although treated as a true lease - does not normally carry with it certain of the responsibilities that the typical lessor bears under Article 2A." 2 James J. White & Robert S. Summers, Uniform Commercial Code § 13-3, at 4 (4th ed. 1995)."A finance lease is the product of a three-party transaction. The supplier manufactures or supplies the goods pursuant to the lessee's specification, perhaps even pursuant to a purchase order, sales agreement, or lease agreement between the supplier and the lessee. After the prospective finance lease is negotiated, a purchase order, sales agreement, or lease agreement is entered into by the lessor (as buyer or prime lessee) or an existing order, agreement, or lease is assigned by the lessee to the lessor, and the lessor and the lessee then enter into a lease or sublease of the goods. Due to the limited function usually performed by the lessor, the lessee looks almost entirely to the supplier for representations, covenants, and warranties. If a manufacturer's warranty carries through, the lessee may also look to that. Yet, this definition does not restrict the lessor's function solely to the supply of funds; if the lessor undertakes or performs other functions, express warranties, covenants, and the common law will protect the lessee." UCC § 2A-102 cmt. at 14-15 (Proposed Final Draft, 30 Apr. 1999).