| Lease Terms
General Provisions:
The lease agreement is a financing or capital lease; that is, at the end of the lease, the government entity (The Lessee) owns the leased property
without further payments. The leased property must be used as part of
the Lessee's governmental or not-for-profit function and may be used in
any of its departments or subdivisions.
Length of the Lease: The
Lessee selects a repayment period, expressed in months. The maximum period
is, however, limited to the useful economic life of the leased property.
Payments:The lease is
payable in monthly installments.
Each payment is comprised of principal and interest components, which are
itemized by month in the lease agreement. The total amount of the payment
is the same amount each month.
Annual Cancellation & Voter Approval: U.
S. States, Territories, municipalities, and local governments are granted
the option to cancel the lease at the end of each of the Lessee's fiscal
years. This clause normally exempts the lease from voter approval. If the
lease is canceled, you lose the use of the property. There are no other financial penalties; however, the
Lessee for a limited period of time may not lease or purchase substitute property for the property
returned. (This cancellation clause is not available to not-for-profit organizations.)
Obligation to Pay: The
lease agreement requires the Lessee to pay unconditionally, unless the
lease is canceled as described above. The lease payment is due regardless
of whether or not the leased property is in working condition or performs
the tasks it was acquired to perform. MCM does not warranty or guarantee
the leased property, its operation or serviceability. Lease payments may
not be reduced or eliminated due to a problem with the leased property
or for any other reasons.
Operating Costs & Insurance: All
operating costs of the leased property such as maintenance, insurance,
taxes, utilities and fuel must be paid by the Lessee. In many states,
the leased property is exempt from real and personal property taxes. Lessees
that self-insure are not required to carry insurance on the leased property,
but must agree to replace the leased property if it is destroyed. Before the lease
is funded, Lessees not self-insuring must provide MCM with a certificate
of insurance demonstrating that the leased property is insured.
Accounting & Recording of a Financing Lease:
Lessees that report their financial statements in accordance
with generally accepted accounting principles must record the lease on their
balance sheet. The unpaid principal amount is shown as a liability. The
cost of the leased property is recorded as an asset and must be depreciated.
Lessees should consult with their accountants and advisors regarding accounting
for the lease before entering into a lease agreement.
Title to leased Property: During
the lease, title to the leased property is held in the Lessee's name
and the Lessee agrees to return the title to the property to MCM if it
defaults or cancels the lease. The Lessee must grant MCM a security interest
in the leased property, normally evidenced by a mortgage
financing statement filed with the U.S. state or territory where the
property is located. The Lessee must pay any liens placed on the leased
property by someone else.
Option to Prepay: The
Lessee has the right to prepay the entire amount leased at anytime by
giving MCM a 30-day written advance notice. The amount required to entirely
prepay the lease each month is set out in a schedule attached to the lease.
Lessees may not make partial prepayments.
Assigning & Subleasing: The
Lessee may not assign its obligation to make payments to someone else.
The Lessee may not sublease the leased property to a private person,
company or the federal government. However, the Lessee may sublease the
leased property to a US state, territory or local government provided
that the Lessee continues to be responsible for the payments. MCM may
assign or sell its rights to receive payments from the Lessee and/or its
interest in the lease agreement to other investors, including selling certificates
of participation in the lease agreement and/or its payments to others.
Default by Lessee/Lessee: Default
by the Lessee/lessee includes nonpayment of the lease payments or not
complying with the terms of the lease agreement. If the Lessee defaults,
all of the remaining payments become immediately due and payable. Posession of the leased
property must be returned to MCM at the Lessee's expense and may be sold
or leased by MCM to someone else. The Lessee must pay any deficit remaining
after the sale or lease of the property. We may also enforce our rights
in court. A cancellation of the lease agreement by the Lessee (except
by a not-for-profit organization) per its annual cancellation right will
not constitute an event of default.
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