A
lease in which the
lessee has the option to
buy the underlying
asset at less than its
fair market value at the end of the lease. For example, one may enter into an agreement to
rent a house for five years with the option to purchase the house at the end of five years; the
price is determined at the beginning of the lease, but must be substantially less than the market value of the house. If the lease is non-cancelable, the
Financial Account Standards Board requires that it be considered a
capital lease. See also:
Rent-to-own.