Lease and lease purchase agreements are contracts that allow a school (the lessee) the use of equipment for a fixed time period in return for a regular installment payment. A third party (the lessor) acquires and finances energy-efficiency equipment with little or no upfront cost to the school.
Leases can be used to obtain the full range of energy-efficient equipment and can be used for single or multi-agency purposes. Payments can be spread over 1 to 15 years or more.
How It Works
Equipment is selected by the school and then leased from a commercial leasing corporation, bank, investment broker, or equipment manufacturer. Generally, lease terms are flexible and can be designed so that energy savings will pay for at least the financing portion of the lease. A school can negotiate individual leases for each improvement, or it can set up a master lease to authorize multiple capital equipment acquisitions over time. Master leases reduce negotiating time and transaction costs and allow the lessee to spread financing costs among a larger group of projects. A master lease may be useful to a large organization or state agency that wants to provide low-cost financing of energy equipment for its own departments, agencies, or local governments.
How to Proceed
- Retain financial, legal, or ESCO counsel to provide advice because leasing options can be complex and involve significant contractual or legal requirements.
- Determine the tax credits or depreciation tax breaks available for third-party leasing options. Consult counsel regarding the legality of third-party leasing options upfront.
- For a private school, determine which sort of lease matches the criteria of the project. A public school should consider a municipal lease, which does not count as debt on a government’s balance sheet and, thus, does not affect a school district’s capacity to borrow in the future.