2010 Pennsylvania Code
Title 13 - COMMERCIAL CODE
Chapter 12 - General Definitions and Principles of Interpretation
1203 - Lease distinguished from security interest.

     § 1203.  Lease distinguished from security interest.
        (a)  Factual determination.--Whether a transaction in the
     form of a lease creates a lease or security interest is
     determined by the facts of each case.
        (b)  Sufficient attributes for security interest.--A
     transaction in the form of a lease creates a security interest
     if the consideration that the lessee is to pay the lessor for
     the right to possession and use of the goods is an obligation
     for the term of the lease and is not subject to termination by
     the lessee, and:
            (1)  the original term of the lease is equal to or
        greater than the remaining economic life of the goods;
            (2)  the lessee is bound to renew the lease for the
        remaining economic life of the goods or is bound to become
        the owner of the goods;
            (3)  the lessee has an option to renew the lease for the
        remaining economic life of the goods for no additional
        consideration or for nominal additional consideration upon
        compliance with the lease agreement; or
            (4)  the lessee has an option to become the owner of the
        goods for no additional consideration or for nominal
        additional consideration upon compliance with the lease
        agreement.
        (c)  Insufficient attributes for security interest.--A
     transaction in the form of a lease does not create a security
     interest merely because:
            (1)  the present value of the consideration the lessee is
        obligated to pay the lessor for the right to possession and
        use of the goods is substantially equal to or is greater than
        the fair market value of the goods at the time the lease is
        entered into;
            (2)  the lessee assumes risk of loss of the goods;
            (3)  the lessee agrees to pay, with respect to the goods,
        taxes, insurance, filing, recording or registration fees or
        service or maintenance costs;
            (4)  the lessee has an option to renew the lease or to
        become the owner of the goods;
            (5)  the lessee has an option to renew the lease for a
        fixed rent that is equal to or greater than the reasonably
        predictable fair market rent for the use of the goods for the
        term of the renewal at the time the option is to be
        performed; or
            (6)  the lessee has an option to become the owner of the
        goods for a fixed price that is equal to or greater than the
        reasonably predictable fair market value of the goods at the
        time the option is to be performed.
        (d)  Nominal consideration.--Additional consideration is
     nominal if it is less than the lessee's reasonably predictable
     cost of performing under the lease agreement if the option is
     not exercised. Additional consideration is not nominal if:
            (1)  when the option to renew the lease is granted to the
        lessee, the rent is stated to be the fair market rent for the
        use of the goods for the term of the renewal determined at
        the time the option is to be performed; or
            (2)  when the option to become the owner of the goods is
        granted to the lessee, the price is stated to be the fair
        market value of the goods determined at the time the option
        is to be performed.
        (e)  Remaining economic life and reasonable predictability.--
     The "remaining economic life of the goods" and "reasonably
     predictable" fair market rent, fair market value or cost of
     performing under the lease agreement shall be determined with
     reference to the facts and circumstances at the time the
     transaction is entered into.

        Cross References.  Section 1203 is referred to in section
     1201 of this title.