§ 25-1-203. Lease distinguished from security interest. - North Carolina Statutes

§ 25‑1‑203.  Leasedistinguished from security interest.

(a)        Whether atransaction in the form of a lease creates a lease or security interest isdetermined by the facts of each case.

(b)        A transaction inthe form of a lease creates a security interest if the consideration that thelessee is to pay the lessor for the right to possession and use of the goods isan obligation for the term of the lease and is not subject to termination bythe lessee, and:

(1)        The original term ofthe lease is equal to or greater than the remaining economic life of the goods;

(2)        The lessee is boundto renew the lease for the remaining economic life of the goods or is bound tobecome the owner of the goods;

(3)        The lessee has anoption to renew the lease for the remaining economic life of the goods for noadditional consideration or for nominal additional consideration uponcompliance with the lease agreement; or

(4)        The lessee has anoption to become the owner of the goods for no additional consideration or fornominal additional consideration upon compliance with the lease agreement.

(c)        A transaction inthe form of a lease does not create a security interest merely because:

(1)        The present value ofthe consideration the lessee is obligated to pay the lessor for the right topossession and use of the goods is substantially equal to or is greater thanthe fair market value of the goods at the time the lease is entered into;

(2)        The lessee assumesrisk of loss of the goods;

(3)        The lessee agrees topay, with respect to the goods, taxes, insurance, filing, recording, orregistration fees, or service or maintenance costs;

(4)        The lessee has anoption to renew the lease or to become the owner of the goods;

(5)        The lessee has anoption to renew the lease for a fixed rent that is equal to or greater than thereasonably predictable fair market rent for the use of the goods for the termof the renewal at the time the option is to be performed; or

(6)        The lessee has anoption to become the owner of the goods for a fixed price that is equal to orgreater than the reasonably predictable fair market value of the goods at thetime the option is to be performed.

(d)        Additionalconsideration is nominal if it is less than the lessee's reasonably predictablecost of performing under the lease agreement if the option is not exercised.Additional consideration is not nominal if:

(1)        When the option torenew the lease is granted to the lessee, the rent is stated to be the fairmarket rent for the use of the goods for the term of the renewal determined atthe time the option is to be performed; or

(2)        When the option tobecome the owner of the goods is granted to the lessee, the price is stated tobe the fair market value of the goods determined at the time the option is tobe performed.

(e)        The "remainingeconomic life of the goods" and "reasonably predictable" fairmarket rent, fair market value, or cost of performing under the lease agreementmust be determined with reference to the facts and circumstances at the timethe transaction is entered into. (1899, c. 733, ss. 25, 56, 191; Rev., ss. 2173, 2205,2340, 3032; 1917, c. 37, ss. 4, 5, 58; 1919, c. 65, ss. 1, 10, 32, 42; c. 290;C.S., ss. 280, 283, 292, 314, 2976, 3005, 3037, 4037, 4044, 4046; 1941, c. 353,s. 22; G.S., s. 55‑102; 1955, c. 1371, s. 2; 1961, c. 574; 1965, c. 700,s. 1; 1967, c. 562, s. 1; 1975, c. 862, ss. 2, 3; 1989 (Reg. Sess., 1990), c.1024, s. 8(a)‑(c); 1993, c. 463, s. 2; 1995, c. 232, s. 3; 2000‑169,ss. 5‑7; 2006‑112, s. 1.)