Policies & Procedures - Rental/Lease/Lease Purchase

Discussion. When we talk about renting, leasing, and lease-purchasing, we are discussing two possibilities:

Paying for the use of an asset over time

Financing the purchase of an asset

In the first case, we are renting or leasing. In the second case, we are lease-purchasing.

Terminology. As most people use the words today, "rent" and "lease" have become interchangeable terms.

However, if you check the dictionary, the term "rent" applies mainly to any periodic payment in exchange for the use of something. The term "lease" applies mainly to the contractual agreement between the renter and the person who owns the thing being rented.

Operating Lease. The term "operating lease" means any agreement by which you intend to pay for the use of something over time, but never intend to own.

Lease-Purchase. The term "lease-purchase" means any agreement that has the characteristics of a lease, but which is in substance the purchase of an asset over time. A lease-purchase may also be called by another name: "capital lease." Lease-purchase and capital lease are basically interchangeable terms.

Procedures. Leases are more complicated than the normal every-day purchase of goods or services. Accordingly you should observe and comply with the special rules and procedures that govern leases.

Lease-Purchases. Lease-purchases are complicated. The State of Oklahoma has established a strict process for lease-purchases because they cause the state to incur debt. All lease-purchases must be reviewed and approved by the state's Bond Oversight Commission. If you agree to a lease-purchase arrangement without going through the proper procedures, you may be guilty of breaking the law, and you may be subject to fines and other penalties. Recently, however, the Oklahoma State Regents for Higher Education (OSRHE) established a service to streamline the review and approval process for lease-purchases by Oklahoma's colleges and universities.

OSRHE Master Lease-Purchase Program. The purpose of the master lease-purchase program is to offer a method to finance the acquisition of major personal property (major movable property, not real estate) that will provide savings in both financing and administrative costs.

The value of the lease-purchase agreement must be at least $50,000 but cannot exceed $5,000,000.

The lease term shall be equal to the useful life of the asset, but cannot be shorter than 3 years nor longer than 10 years.

The types of purchases authorized under this program may include, but not limited to

Computer equipment

Agricultural equipment

Telephone equipment

Copiers

Research and medical equipment

Maintenance equipment.

The OSRHE offices will survey institutions quarterly for their lease purchase requirements under this program. OSRHE will work with each institution in processing all the required paper work. Because a lease-purchase involves debt, the debt is secured by OUHSC's State-Appropriated revenues. Once all payments have been made under a lease-purchase agreement, title to the asset will transfer to OUHSC.

Operating Leases. Because operating leases do not result in ownership, they are much less complicated. Usually, you pay a monthly fee for the use of the property for a specified period of time and then return the property to the owner at the end.

Requisition. You should always complete a requisition to start off the lease process. The primary reason for this is that leases almost always require a contract of agreement, and the requisition number becomes the "first crumb" of the paper trail that ties together all the related paper work. (Please read "Contract or Agreement" below.)

Contract or Agreement. Leases almost always involve written contracts or agreements. You are not allowed to sign any agreement unless the President of the University has specifically assigned that authority to you, in writing. The President has assigned signature authority to the Director of Purchasing (and to other selected Vice Presidents and Directors). Accordingly, you should forward all contractual documents to the Purchasing Department, as attachments to the Requisition you are required to prepare, as required above. The Purchasing Department will coordinate with the OU Legal Officers, who will work closely with the lessor to make any necessary language changes to the contract.