Is The Traditional Copier Lease Dead?

Is The Traditional Copier 

Lease Dead?

Leasing practices are changing. Although these changes will not be fully effective until December 15th, 2018 for public entities and December 15th, 2019 for all others, it is best to know what the changes will be and how you can prepare.

Currently, office equipment leasing transactions are usually implemented as one of two options: Operating leases (most commonly referred to as Fair Market Value or FMV) and Capital leases (referred to as Dollar Buyout leases).

Types of Leases

Operating, or FMV, leases are treated like a rental; your lease payments are an expense and the asset stays off your balance sheet. At the end of the lease, there is usually a purchase option to exercise the “Fair Market Value” determined by the leasing company at the end of the lease, not the beginning. This treatment allows your copier company to come back to you at the end of the lease and say, “It’s time to refresh all of your copiers,” as they control the assets and can determine their disposition, including the purchase price should you decide you want to keep them and just continue maintenance.

Capital, or Dollar Buyout, leases are structured more like a loan; the asset is treated as owned by the lessee so it must appear on your balance sheet. This type of lease is really an extended purchase option, since you are paying off the asset during the life of the lease agreement.

Most organizations in the past have opted for an Operating/FMV lease to avoid having to recognize the liability on their balance sheet. I’ve heard this over and over from our clients as we write lease agreements, “No matter what, the lease needs to be an operational expense.” We know this requirement is being driven by finance to drive better balance sheet metrics, even though this type of lease gives more control to the lessor.Here is usually very little difference in the monthly payment between these two options.

At Copstore - Photocopier Consumables, Supplies, Spare Parts . We don’t push clients into a one-sided lease agreement. We openly and transparently explain the difference and will advise the proper approach. For instance, we see many non-profits with an Operating / FMV lease because they shopped the “lowest bid” monthly payment. The non-profit ends up paying more in property taxes (even though they’re tax exempt) due to the Capital lease structure.