General Policy on Leasing
Leases are legally binding contracts that financially obligate the University. The bylaws of the University specifically state that only Officers of the Corporation may sign contracts. Therefore, the negotiation, approval and processing of all leases will be the responsibility of Treasury Operations and will require final approval from the Vice President for Finance.
Leasing equipment is subject to the same policies and procedures (including the CEA process and the creation of a requisition) that would apply to the acquisition of any piece of capital equipment, such as computers, scientific equipment, business related equipment, etc.
Leasing is a financing mechanism, not a funding source. The acquiring department must identify the funding source prior to entering into a lease. In order to be considered for leasing, the item must have a value of at least $50,000 and must have CEA approval. The primary reason to lease rather than buy an item is because the needed item is so expensive that its direct purchase is not possible and other financing mechanisms are unavailable or more expensive than leasing.
The lease or buy decision and the identification of the type of lease that would be most appropriate must take into consideration the following criteria:
- Technical and operational useful life of the item(s).
- Likelihood of continued use beyond the lease term.
- Budgeting issues.
- Financing terms (term, cost of borrowing).
- Type of lease (Operating vs. Capital) and its Financial Statement impact.
Types of Leases – Operating vs. Capital
Normally at the end of an Operating Lease, the leased item is returned to the lessor. With a Capital Lease, the University will own the leased item at the end of the term with no additional payments or by paying a predetermined price that is well below the expected fair market value of the property. An Operating Lease is treated like a series of rental payments, whereas a Capital Lease is recorded as an asset of the University, with a corresponding liability for the full amount of the lease obligation.
The procedures for leasing equipment are outlined below:
|1. A Lease Information Form (see Exhibit I ) must be filled out by the requesting department, and returned to Treasury Operations to the attention of the Assistant Treasurer. However, before proceding with the leasing process, the normal procedures for acquiring equipment should be completed. The department needs to complete the standard Capital Expenditure Authorization (CEA) process. In filling out the CEA form, the intent to lease and the type of lease (capital or operating) should be noted if known. The level of CEA authorization will be based on the purchase price of the item, not on the projected monthly lease expense||Department|
|2. As with regular equipment purchases, departments will follow the University’s standard procedures for processing a Purchase Requisition, noting on the form that the equipment is to be leased rather than purchased. The completed Purchasing Requisition will be sent to the Purchasing Office along with the approved CEA, the “Lease Information Form,” and any other documentation supporting why a particular vendor, if any, was chosen.||Department|
|3. Purchasing will forward the Lease Information Form and copies of bids to Treasury Operations before completing the equipment purchase order.||Purchasing|
|4. Treasury Operations will determine the best funding mechanism for the acquisition and notify the department. If leasing is not the best option, the Assistant Treasurer will work with the department to find a suitable alternative. Should leasing be approved, lease proposals will be obtained and reviewed by Treasury Operations and the requesting department will be notified of the type of lease (operating vs. capital), the monthly lease payment, the lease term and the account coding to which the monthly lease payment should be charged (#5563 Equipment Rental, or #5406 Capital Lease Equipment). Please note that the proposed lease rates may be subject to change as specified in the lease proposal, typically based on fluctuations in interest rates from a specified date (usually 30 days) after the quote until a proposal agreement is signed. Treasury will notify purchasing of the financing decision so that the purchase order can be completed.||Treasury Operations|
|5. Once the equipment has been delivered, installed and is working properly, the department will notify the Assistant Treasurer. It is the department’s responsibility to work with the vendor to ensure that the equipment is delivered and installed in good order.||Department|
|6. Upon notification from the department, the Assistant Treasurer will sign and return to the leasing company the Certificate of Acceptance at which time the lease officially begins. Under no circumstances should the Certificate of Acceptance be signed before the equipment has been received and tested. Copies of lease documents will be forwarded to the department by Treasury Operations. In the case of capital leases, Purchasing will instruct the Property Office to add the equipment to the University’s equipment inventory system.||Treasury Operations and Purchasing|
|7. Payment procedures for all leases will be handled by Accounts Payable. Lease invoices will be sent to Accounts Payable by the leasing company and Accounts Payable will determine the appropriate method of payment.||Accounts Payable|
|8. Ninety days prior to the expiration of an operating lease, it is the responsibility of the department to determine whether the equipment should be returned, re-leased, or purchased and to notify the Assistant Treasurer of its plans. All Master Lease Contracts negotiated with Tufts specify that the University must notify the leasing company within 60 days of its intent. The additional days are needed to process end of lease transactions. Failure to do so will result in additional monthly lease charges. Treasury Operations will work with the department to be sure the final decision is in the University’s best interest. For re-leasing and buyouts, appropriate purchasing procedures must be followed.||Department, Purchasing and Treasury Operations|
|9. If a decision has been made to purchase the equipment at the end of an operating lease, the Assistant Treasurer will work with Purchasing, the Department and the leasing company to determine the fair market value (FMV) of the equipment. Once the FMV has been negotiated, the department will be notified. Any purchase over $25,000 must follow the normal CEA process. A completed CEA purchase requisition must be sent to the Purchasing Department for the creation of a Purchase Order in the PeopleSoft system. After the purchase, Purchasing will instruct the Property office to add equipment to the University’s equipment inventory system.NOTE: Treasury Operations will be the primary contact between the leasing company and the University for all terminations, re-negotiations, or lease additions.||Department, Purchasing and Treasury Operations|