CLFP Lease Documentation & Contracts 3

Question 1

What is an 'evergreen' lease clause?

Accepted Answer

A provision that automatically renews the lease unless proper notice is given to terminate

Answer

An evergreen clause automatically renews a lease for successive periods unless the lessee provides timely written notice of intent to terminate or return the equipment.

Question 2

What is the difference between a 'true lease' and a 'conditional sale' from a documentation standpoint?

Accepted Answer

A true lease has no automatic ownership transfer; a conditional sale transfers ownership upon final payment

Answer

In a true lease the lessee has rental rights only, while in a conditional sale the lessee gains ownership automatically upon satisfying all payment conditions.

Question 3

What is the purpose of an 'interim rent' provision in a lease?

Accepted Answer

To collect rent from the equipment delivery date until the lease commencement date

Answer

Interim rent covers the period between equipment acceptance and the official start of the base lease term, ensuring the lessor is compensated during that gap.

Question 4

In a lease agreement, what does a 'financial covenants' section require?

Accepted Answer

The lessee to maintain specified financial ratios or conditions throughout the lease term

Answer

Financial covenants require the lessee to maintain specific financial metrics (e.g., debt-to-equity ratio, minimum liquidity) as a condition of keeping the lease in good standing.

Question 5

What is a 'hell or high water' clause's relationship to the 'quiet enjoyment' provision?

Accepted Answer

Hell or high water obligates lessee payments unconditionally; quiet enjoyment obligates the lessor not to disturb the lessee's use of equipment

Answer

These clauses are paired obligations: the lessee must pay regardless of circumstances, while the lessor guarantees the lessee's undisturbed use of the equipment.

CLFP - Certified Lease & Finance Professional Practice Test

CLFP - Certified Lease & Finance Professional Practice Test

CLFP Lease Documentation & Contracts 3