4.11 Lease and Lease Purchase

Policy Information

Purpose and Summary

The purpose of this policy is to outline the requirements and process for Lease Purchases.

Scope

This policy applies to all University locations and units, including all University extensions, satellite locations, and off-site campus units, both domestic and international.

Definitions

1. Lease Purchase: A lease contract under which a portion of the lease or rent payment is applied to the purchase price of the leased property. At the end of the lease term, the title is transferred to the University.

Policy

1. All forms of Lease, Lease Purchase or Rental Agreements for material or services must be signed on behalf of the University by the Contracting Office, or a Buyer.
2. Regardless of the time period involved in these agreement types, a formal University Purchase Order will be issued. The using department should define the type of Agreement on the requisition indicating whether it is a new or renewal agreement. A copy of the Agreement shall accompany the requisition, if available.
3. Prior to accepting Agreements as submitted by the requisitioning department, Purchasing will perform an analysis to determine the economic soundness of lease versus purchase for the goods or services required. Some of the factors that will be considered in making this lease versus purchase determination are as follows:
   • Title: Who retains title?
   • Liability: Who is responsible if equipment is stolen or damaged?
   • Insurance: Does the vendor carry sufficient insurance on his/her employees when rendering services and/or is the equipment adequately insured?
   • Maintenance: Are all maintenance costs included in the original cost of the lease, or is the University responsible for maintaining the equipment at its own expense?
   • Payback Period: If the University were to make an outright purchase, what is the payback period, and what credits are accumulated in the event that a Lease Purchase Agreement is executed?
   • Fund Availability: Does the requisitioning department have sufficient budget funds or, in the event of grant or contract funds, does the funding provide for this type of expenditure?

Procedures

1. Lease Purchase Procedures:
   1. Department contacts Capital Finance or Purchasing regarding capital equipment lease-purchase.
   2. Capital Finance sends a "Financing Request Form" to the requesting Department.
   3. Department completes the "Financing Request Form" and returns to Capital Finance.
   4. If Grant Funds are involved, Capital Finance consults with Rate Studies and Sponsored Projects Services.
   5. Capital Finance confirms with Fund Accountant that "Lease Payment" account is valid.
   6. Capital Finance completes a "Sealed Bid" form and sends it to Purchasing.
   7. Purchasing will then send the bid to the pool of leasing companies.
2. In addition, Financial Services reviews all lease transactions. Operating or closed-end leases are reviewed to confirm that they do not qualify as a capital lease. After review and approval, closed-end leases will then follow the normal approval process.
3. Lease purchase or capital leases are also reviewed by Financial Services to determine the appropriateness of the transaction, with particular emphasis on the interest rate charged and the effect of creating additional institutional debt. After this review, the transaction must be approved by the Senior Vice President and Chief Financial Officer of Business Affairs before final approval can be completed.
4. Lease or Lease Purchase Agreements must have flexible cancelation provisions which will allow the University to discontinue such agreements if further appropriation funding from state, federal, or other legal sources is reduced or terminated. This is especially important for Sponsored Projects and for University service centers that "recharge" costs to federal funds.
5. For further information, contact Purchasing at 621-1747, or the Contracting Office at 626-3919.
6. For information concerning lease, purchase, or sale of real estate, contact Real Estate Administration at 621-1813.

Related Information

Capital Finance
List of leasing companies
Real Estate Administration

* Please note that sections titled Frequently Asked Questions and Related Information are provided solely for the convenience of users and are not part of the official University policy.