When is a lease considered a sale in secured transactions?

A lease can be considered a sale in secured transactions under certain conditions, particularly when the lessor has no expectation of reversion. This concept is grounded in the idea that if the lessor does not intend to reclaim the leased item at the end of the lease term, the transaction resembles a sale rather than a traditional lease agreement. In such scenarios, the lessee effectively gains ownership or a strong possessory interest in the property, similar to purchasing it outright.

In this context, if the lessee receives significant rights over the asset and the lessor does not anticipate reclaiming it, the arrangement suggests a sale. This distinction is crucial in determining rights and priorities under the Uniform Commercial Code (UCC), particularly in secured transactions.

Other factors such as the lease being below market value or lacking an expiration date might raise issues of fair dealing or the intent behind the lease but do not have the same direct impact on treating a lease as a sale. The notion of payments exceeding the value of the leased item also indicates conditions of the lease, but it does not directly equate to the absence of a reversion expectation. Thus, the absence of the expectation of reversion is the defining factor that aligns the lease with a sale in the context of secured transactions