Examples
Worked examples
- Is an instance
A core facility leases a mass spectrometer under an FMV lease with lower monthly payments, planning to return or renew the equipment rather than buy it at the end of the term, since the instrument is expected to be technologically outdated within the lease period.
- Is an instance
A diagnostic lab acquires a -80C ultra-low freezer through a $1 buyout lease, effectively financing the purchase over 36-60 months while preserving cash and credit lines, and takes ownership for a nominal $1 at the end of the term.
Counter-examples
Looks similar, but isn't
- Not an instance
A lab pays cash to purchase a centrifuge outright, with no financing or rental arrangement involved -- this is a direct purchase, not an instance of any equipment lease type, since there is no lessor, no periodic lease payment, and no end-of-term ownership option to classify.
- Not an instance
A department rents a portable generator for a two-week facility shutdown under a cancellable short-term rental agreement -- because the arrangement is short-term and cancellable with no purchase-option structure, it does not fall under ASC 842's lease recognition requirements the way the leases described here do.
Editorial commentary
Overview
“Types of equipment leases” refers to the small set of commercial lease structures vendors and leasing companies offer for lab and clinical equipment — each defined primarily by what happens to ownership at the end of the term, and each carrying different monthly-payment, tax, and balance-sheet consequences. Procurement officers and lab managers evaluating a lease quote need to know which structure they are being offered before comparing it to a purchase or to another vendor’s terms, because “lease” alone does not specify the deal.
These commercial structures are a separate question from how the lease is classified for accounting purposes under ASC 842 (finance lease vs. operating lease) — a single commercial lease type can, depending on its terms, land on either side of that accounting test. See the classification section below.
The Four Common Commercial Lease Structures
Fair Market Value (FMV) Lease
Also called a true lease or operating-style lease. At the end of the term, the lessee has no automatic ownership; instead the lessee can purchase the equipment at its then-current fair market value, renew the lease, or return the equipment. Monthly payments are typically the lowest of the four structures because the lessor retains meaningful residual risk. This structure suits equipment that a lab expects to upgrade or replace on a predictable cycle — sequencers, imaging systems, and other instruments subject to fast technology turnover.
$1 Buyout Lease (Capital/Finance-Style Lease)
Structured so the lessee purchases the equipment for a nominal $1 at the end of the term. Economically this functions like a loan: monthly payments are higher than an FMV lease because they are amortizing the full cost of the equipment, and ownership transfer is effectively guaranteed. This is the standard structure when the intent from day one is to own the equipment, but the buyer wants to spread the cost and preserve capital or credit lines rather than pay cash up front.
10% Option (or “10% PUT”) Lease
A hybrid: the lessee has the option to purchase the equipment at 10% of its original cost at the end of the term (rather than at fair market value or at $1). Monthly payments sit between an FMV lease and a $1 buyout lease. It gives the lessee a lower, known purchase price without committing to ownership from the outset the way a $1 buyout does.
TRAC Lease (Terminal Rental Adjustment Clause)
Used mainly for vehicles and some fleet-style equipment rather than bench instruments. A TRAC lease sets an estimated residual value at signing; at the end of the term, the final payment is adjusted up or down to reconcile that estimate against the equipment’s actual fair market value. Labs and institutions that lease fleet vehicles (courier, field-sampling, or facilities vehicles) are more likely to encounter this structure than labs leasing analytical instruments.
How Lease Type Interacts With ASC 842 Classification
Separately from which of the four structures above a lease uses, U.S. GAAP requires every lease longer than 12 months to be classified, for accounting purposes, as either a finance lease or an operating lease under ASC 842. The classification test looks at criteria including whether ownership transfers by the end of the term, whether there is a bargain purchase option, whether the lease term covers the major part of the equipment’s remaining economic life, and whether the present value of payments amounts to substantially all of the equipment’s fair value. A $1 buyout lease will almost always classify as a finance lease because ownership transfer is built in. An FMV lease more often — though not automatically — classifies as an operating lease. Under ASC 842, both classifications now put a right-of-use asset and a lease liability on the balance sheet; the practical differences are in income-statement presentation and cash-flow classification, not in whether the obligation is disclosed at all. Procurement staff should not assume a lease’s commercial name tells them its accounting classification — that has to be evaluated against the actual contract terms, typically by finance/accounting staff.
What to Evaluate When Comparing Lease Offers
- End-of-term terms — which of the four structures above, and what the actual dollar or percentage purchase option is, in writing.
- Total cost over the full term versus an outright purchase or a different lease structure, not just the monthly payment.
- Maintenance and service inclusion — some equipment leases bundle preventive maintenance and calibration; others are “net” leases where service is a separate contract.
- Early-termination and equipment-return conditions, including any condition/refurbishment charges on return.
- Vendor or leasing-company standing — whether you are leasing directly from the equipment manufacturer, from a third-party leasing/finance company, or through a distributor that packages financing alongside the equipment sale (some lab-supply distributors, including LAC Health, offer financing or leasing options alongside equipment sales; treat that as one procurement channel to evaluate on its actual terms, not a default choice).
- Funding-source restrictions — equipment leased against a federal award is governed by 2 CFR 200.465, which applies its own allowability and cost-cap rules independent of which commercial lease structure is used.
Frequently Asked Questions
Is an equipment lease the same as a rental?
Not necessarily. A short-term rental (often under 12 months, cancellable, no purchase-option structure) is generally treated differently from a lease both commercially and under ASC 842, which specifically applies its recognition requirements to leases longer than 12 months.
Which lease type is cheapest?
There is no universally cheapest structure — it depends on whether the lab intends to keep the equipment past the initial term. An FMV lease usually has the lowest monthly payment but the highest total cost if the lessee ultimately buys the equipment at fair market value at the end; a $1 buyout lease has higher payments but a fixed, known total cost. Compare total cost of ownership across the full expected useful life, not the monthly payment alone.
Do all equipment leases show up on the balance sheet?
Under ASC 842, yes, for any lease with a term over 12 months, regardless of whether it is classified as a finance lease or an operating lease — both get a right-of-use asset and a lease liability. See the ASC 842 guide for the classification mechanics.
Related Reading
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