Gives the lessee the option to purchase the asset at a price below fair market value when the lease expires.
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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.
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