H.B. 140

VETOES

interest of a buyer of goods on identification of such goods to a contract for sale under
§ 2-401 is not a "security interest", but a buyer may also acquire a "security interest"
by complying with Title 9. Except as otherwise provided in § 2-205, the right of a
seller or lessor of goods under Title 2 or Title 2A to retain or acquire possession of
goods is not a "security interest", but a seller or lessor may also acquire a "security
interest" by complying with Title 9. The retention or reservation of title by a seller of
goods notwithstanding shipment or delivery to the buyer (§ 2-401) is limited in effect
to a reservation of a "security interest".

(a)     Whether a transaction creates a lease or security interest is
determined by the facts of each case; however, a transaction creates a security
interest if the consideration the lessee is to pay the lessor for the right to possession
and use of the goods is an obligation for the term of the lease not subject to
termination by the lessee, and

(i) The original term of the lease is equal to or greater than
the remaining economic life of the goods,

(ii) The lessee is bound to renew the lease for the remaining
economic life of the goods or is bound to become the owner of the goods,

(iii) The lessee has an option to renew the lease for the
remaining economic life of the goods for no additional consideration or nominal
additional consideration upon compliance with the lease agreement, or

(iv) The lessee has an option to become the owner of the goods
for no additional consideration or nominal additional consideration upon compliance
with the lease agreement.

(b)     A transaction does not create a security interest merely because
it provides that

(i) The present value of the consideration the lessee is
obligated to pay the lessor for the right to possession and use of the goods is
substantially equal to or is greater than the fair market value of the goods at the time
the lease is entered into,

(ii) The lessee assumes risk of loss of the goods or agrees to
pay taxes, insurance, filing, recording, or registration fees, or service or maintenance
costs with respect to the goods,

(iii) The lessee has an option to renew the lease or to become
the owner of the goods,

(iv) The lessee has an option to renew the lease for a fixed rent
that is equal to or greater than the reasonably predictable fair market rent for the use
of the goods for the term of the renewal at the time the option is to be performed, or

(v) The lessee has an option to become the owner of the goods
for a fixed price that is equal to or greater than the reasonably predictable fair
market value of the goods at the time the option is to be performed.

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