Finance Leasing Manual - FLM12.27

Where secondary period can be inferred: 'full payout' leases

A 'full payout' lease is a lease under which the ordinary rentals fully repay the lessor's outlay plus interest. If a 'full payout' lease only has a primary period it is reasonable to assume that there must be something that corresponds to a secondary period. For example

• the lease may contain a clause providing for the term to be extended;

• it may be possible to infer the existence of a secondary lease period even if the lease agreement does not explicitly provide for one, particularly if the agreement does not actually specify what happens at the end of the lease period

• the extension may be provided for in some other way, perhaps in some other agreement.

If it is claimed that there is no explicit or inferred secondary lease period, so that the rentals cannot be spread over any longer period, see FLM12.30.