§ 7703 Net Lease Obligations

Key Takeaways

•A 'net lease' means the person renting the property (like a car or machine) has to take care of all the repairs, maintenance, and insurance themselves. The owner doesn't have to do any of that.
•If the renter wants to add something new to the property (like a new part for a machine), they can ask to rent that too, but it has to follow the 'full-payout' rule.
•A 'full-payout' lease means the owner should get back all the money they spent on the property, plus extra for financing, mostly from the rent payments. Only a small part (20% or less) can come from selling the property later.
•The lease can last up to 40 years, but the owner can't rely too much on selling the property later to make money. Most of their money should come from the rent.

Example

Imagine you rent a big machine for your business, like a tractor.

With a 'net lease,' you have to fix the tractor if it breaks, buy any new parts it needs, and get insurance for it. The owner won’t do any of that. If you want to add a new attachment to the tractor, you can ask to rent that too, but the owner has to make sure they’ll get all their money back from your rent payments, not just from selling the tractor later.

For the purposes of this article: (a) A “net lease” is a lease under which the association will not, directly or indirectly, provide or be obligated to provide for: (1) The servicing, repair, or maintenance of the leased property during the lease term. (2) The purchasing of parts and accessories for the leased property; provided that improvements and additions to the leased property may be leased to the lessee upon its request in accordance with the full pay-out requirement of this section. (3) The loan of replacement or substitute property while the leased property is being serviced. (4) The purchasing of insurance for a lessee, except where the lessee has failed to discharge a contractual obligation to purchase or maintain insurance. (5) The renewal of any license, registration, or filing for the property unless such action by the association is necessary to protect its interest as an owner or financer of the property. (b) A “full-payout” lease is one from which the lessor can reasonably expect to realize a return of its full investment in the leased property, plus the estimated cost of financing the property over the term of the lease, from rentals, estimated tax benefits, and the estimated residual value of the property at the expiration of the initial term of the lease; provided that no more than 20 percent of the return may be realized from the residual value of the property at the expiration of the initial term of the lease. Both the estimated residual value of the property and that portion of the estimated residual value relied upon by the lessor to satisfy the requirements of a full-payout lease must be reasonable in light of the nature of the leased property and all relevant circumstances so that realization of the lessor’s full investment plus the cost of financing the property depends primarily on the creditworthiness of the lessee, and not on the residual market value of the leased property. The maximum term of a full-payout lease shall be 40 years. (Added by Stats. 1984, Ch. 225, Sec. 8. Effective June 21, 1984.)

Key Takeaways

•A 'net lease' means the person renting the property (like a car or machine) has to take care of all the repairs, maintenance, and insurance themselves. The owner doesn't have to do any of that.
•If the renter wants to add something new to the property (like a new part for a machine), they can ask to rent that too, but it has to follow the 'full-payout' rule.
•A 'full-payout' lease means the owner should get back all the money they spent on the property, plus extra for financing, mostly from the rent payments. Only a small part (20% or less) can come from selling the property later.
•The lease can last up to 40 years, but the owner can't rely too much on selling the property later to make money. Most of their money should come from the rent.

Example

Imagine you rent a big machine for your business, like a tractor.

Key Takeaways

Example

Key Terms

References

§ 7703 Net Lease Obligations

Key Takeaways

Example

Key Terms

References

Key Takeaways

Example

Key Terms

Related Statutes

References

Key Takeaways

Example

Key Terms

Related Statutes

References