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To Contents	Modular Buildings - Lease with option to purchase
By Miley Sutherland on Monday, January 29, 2001 - 01:26 pm: I have a unit that needs office space, but does not have construction money to build an office. Leasing a modular building is the best alternative. Since a "temporary" building might be used for 10 years, or more, I would like to include an option to purchase at the end of each fiscal year. I have been told by some specialists that a LWOP is a "capital lease" and that is forbidden. I have checked GSA's real property regulations and they clearly state a LWOP is a viable alternative to a straight lease, or purchase. GSA also has an IDIQ contract for modular buildings, which has a LWOP as an option. If someone can shed some light on this issue, I would appreciate it. By Anonymous on Monday, January 29, 2001 - 01:47 pm: Check OMB Circular A-11. A change occurred in 1998 that really causes operational and budgeting problems with respect to capital leases. While LWOP is a viable contracting vehicle, I think it does qualify as a capital lease. This means you must obligate the full life cycle amount even though it is a series of annual contract options that the government can walk away from by simply not exercising either the annual option (or the purchase option). By Anonymous on Wednesday, January 31, 2001 - 10:34 am: Millie, I thought more about your question. BTW this is the same "Anonymous" responding. One of the Appendices to A-11 spells out the differences between "operating lease" and "capital lease". Look the criteria over. I think you'll find that including the purchase option changes everything. I also think (but I could be wrong since I'm relying on memory) the rules require some rather strange treatment of which years funding is charged - something like you must cite funds of the year the capital lease was entered into rather than annual funds. So once you add the purchase option, or even devise a lease to ownership plan, it probably becomes a capital lease. Therefore you are better off with a straight lease, even thought it doesn't make good business sense. By Miley Sutherland on Friday, February 02, 2001 - 05:08 pm: Thanks. I checked A-11. You hit the nail, right on the head.

Modular Buildings - Lease with option to purchase

By Miley Sutherland on Monday, January 29, 2001 - 01:26 pm:

I have a unit that needs office space, but does not have construction money to build an office. Leasing a modular building is the best alternative. Since a "temporary" building might be used for 10 years, or more, I would like to include an option to purchase at the end of each fiscal year. I have been told by some specialists that a LWOP is a "capital lease" and that is forbidden. I have checked GSA's real property regulations and they clearly state a LWOP is a viable alternative to a straight lease, or purchase. GSA also has an IDIQ contract for modular buildings, which has a LWOP as an option. If someone can shed some light on this issue, I would appreciate it.

By Anonymous on Monday, January 29, 2001 - 01:47 pm:

Check OMB Circular A-11. A change occurred in 1998 that really causes operational and budgeting problems with respect to capital leases. While LWOP is a viable contracting vehicle, I think it does qualify as a capital lease. This means you must obligate the full life cycle amount even though it is a series of annual contract options that the government can walk away from by simply not exercising either the annual option (or the purchase option).

By Anonymous on Wednesday, January 31, 2001 - 10:34 am:

Millie,

I thought more about your question. BTW this is the same "Anonymous" responding. One of the Appendices to A-11 spells out the differences between "operating lease" and "capital lease". Look the criteria over. I think you'll find that including the purchase option changes everything. I also think (but I could be wrong since I'm relying on memory) the rules require some rather strange treatment of which years funding is charged - something like you must cite funds of the year the capital lease was entered into rather than annual funds. So once you add the purchase option, or even devise a lease to ownership plan, it probably becomes a capital lease. Therefore you are better off with a straight lease, even thought it doesn't make good business sense.

By Miley Sutherland on Friday, February 02, 2001 - 05:08 pm:

Thanks. I checked A-11. You hit the nail, right on the head.