Article 10. Finance Leasing of California Financial Code >> Division 2. >> Chapter 6. >> Article 10.
An association may engage in leasing activities that are
the functional equivalent of lending, subject to the limitations of
Sections 7701 to 7704, inclusive.
An association may become the legal or beneficial owner of
tangible personal property or real property for the purpose of
leasing such property, may obtain an assignment of a lessor's
interest in a lease of such property, and may incur obligations
incidental to its position as the legal or beneficial owner and
lessor of the leased property, if:
(1) The lease is a net, full-payout lease representing a
noncancelable obligation of the lessee, notwithstanding the possible
early termination of the lease.
(2) At the expiration of the lease, the association's interest in
the property shall be liquidated or released on a net basis as soon
(a) A lease of tangible personal property made to a natural
person for personal, family, or household purposes pursuant to this
section shall be subject to all limitations applicable to the amount
of an association's investment in consumer loans.
(b) A lease made for commercial, corporate, business, or
agricultural purposes pursuant to this section shall be subject to
all limitations applicable to the amount of an association's
investment in commercial loans.
(c) A lease of residential or nonresidential real property made
pursuant to this section shall be subject to all limitations
applicable to the amount of an association's investment in real
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.
If, in good faith, an association believes that there has
been an unanticipated change in conditions that threatens its
financial position by significantly increasing its exposure to loss,
the provisions of Sections 7702 and 7703 of this article shall not
prevent the association:
(a) As the owner and lessor under a net, full pay-out lease, from
taking reasonable and appropriate action to salvage or protect the
value of the property or its interest arising under the lease.
(b) As the assignee of a lessor's interest in a lease, from
becoming the owner and lessor of the leased property pursuant to its
contractual right, or from taking any reasonable and appropriate
action to salvage or protect the value of the property or its
interest arising under the lease.
(c) From including any provisions in a lease, or from making any
additional agreements, to protect its financial position or
investment in the circumstances set forth in subdivisions (a) and (b)
of this section.