PART 616—LEASING Authority: Secs. 1.3, 1.5, 1.6, 1.7, 1.9, 1.10, 1.11, 2.0, 2.2, 2.3, 2.4, 2.10, 2.12, 2.13, 2.15, 3.0, 3.1, 3.3, 3.7, 3.8, 3.9, 3.10, 3.20, 3.28, 4.3, 4.3A, 4.13, 4.13A, 4.13B, 4.14, 4.14A, 4.14C, 4.14D, 4.14E, 4.18, 4.18A, 4.25, 4.26, 4.27, 4.28, 4.36, 4.37, 5.9, 5.10, 5.17, 7.0, 7.2, 7.3, 7.6, 7.8, 7.12, 7.13 of the Farm Credit Act (12 U.S.C. 2011, 2013, 2014, 2015, 2017, 2018, 2019, 2071, 2073, 2074, 2075, 2091, 2093, 2094, 2097, 2121, 2122, 2124, 2128, 2129, 2130, 2131, 2141, 2149, 2154, 2154a, 2199, 2200, 2201, 2202, 2202a, 2202c, 2202d, 2202e, 2206, 2206a, 2211, 2212, 2213, 2214, 2219a, 2219b, 2243, 2244, 2252, 2279a, 2279a-2, 2279a-3, 2279b, 2279c-1, 2279f, 2279f-1). Source: 64 FR 34518, June 28, 1999, unless otherwise noted. § 616.600 Definitions. For the purposes of this part, the following definitions apply: (a) Interests in leases (b) Lease (c) Sale with recourse (1) Retains some risk of loss from the transferred asset for any cause except the seller's breach of usual and customary warranties or representations designed to protect the purchaser against fraud or misrepresentation; or (2) Has an obligation to make payments to any party resulting from: (i) Default on the lease by the lessee or guarantor or any other deficiencies in the lessee's performance; (ii) Changes in the market value of the assets after transfer; (iii) Any contractual relationship between the seller and purchaser incident to the transfer that, by its terms, could continue even after final payment, default, or other termination of the assets transferred; or (iv) Any other cause, except that the retention of servicing rights alone shall not constitute recourse. § 616.6100 Purchase and sale of interests in leases. (a) Authority to buy interests in leases. (b) Policies. (1) The types of leases in which the institution may buy or sell an interest and the types of interests which may be bought or sold; (2) The underwriting standards for the purchase of interests in leases; (3) Such limits on the aggregate lease payments and residual amount of interests in leases that the institution may buy from a single institution as are necessary to diversify risk, and such limits on the aggregate amounts the institution may buy from all institutions as are necessary to assure that service to the territory is not impeded; (4) Identification and reporting of leases in which interests are sold or bought; (5) Requirements for securing from the selling lessor in a timely manner adequate financial and other information about the lessee needed to make an independent judgment; and (6) Any limits or conditions to which sales or purchases are subject that the board considers appropriate, including arbitration. (c) Purchase and sale agreements. (1) Identify the particular lease(s) to be covered by the agreement; (2) Provide for the transfer of lessee information on a timely and continuing basis; (3) Identify the nature of the interest(s) sold or bought; (4) Specify the rights and obligations of the parties and the terms and conditions of the sale; (5) Contain any terms necessary for the appropriate administration of the lease, including lease servicing and monitoring of the servicer and authorization and conditions for action in the event of lessee distress or default; (6) Provide for a method of resolution of disagreements arising under the agreement; (7) Specify whether the contract is assignable by either party; and (8) In the case of lease transactions through agents, comply with § 614.4325(h) of this chapter, reading the term “lease” or “leases” in place of the term “loan” or “loans,” as applicable. (d) Independent judgment. (e) Sales with recourse. (1) For the purpose of determining the lending and leasing limit in subpart J of part 614 of this chapter, the lease must be considered, to the extent of the recourse or guaranty, a lease by the buyer to the seller, and in addition, the seller must aggregate the lease with other obligations of the lessee; and (2) The lease subject to the recourse agreement must be considered an asset sold with recourse for the purpose of computing capital ratios. (f) Similar entity lease transactions. § 616.6200 Out-of-territory leasing. A System institution may make leases outside its chartered territory. § 616.6300 Leasing policies, procedures, and underwriting standards. The board of each institution engaged in lease underwriting must adopt a written policy (or policies). Management, at the direction of the board, must develop procedures that reflect lease practices that control risk and comply with all applicable laws and regulations. Any leasing activity must comply with the lending policies and loan underwriting requirements in § 614.4150 of this chapter. An institution engaged in the making, buying, or syndicating of leases also must adopt written policies and procedures that address the additional risks associated with leasing. Written policies and procedures must address the following, if applicable: (a) Appropriateness of the lease amount, purpose, and terms and conditions, including the residual value established at the inception of the lease; (b) Process for estimating the leased asset's market value during the lease term; (c) Types of equipment and facilities the institution will lease; (d) Remarketing of leased property and associated risks; (e) Property tax and sales tax reporting; (f) Title and ownership of leased assets; (g) Title and licensing for motor vehicles; (h) Liability associated with ownership, including any environmental hazards or risks; (i) Insurance requirements for both the lessor and lessee; (j) Classification of leases in accordance with generally accepted accounting principles; and (k) Tax treatment of lease transactions and associated risks. § 616.6400 Documentation. Each institution must document that any asset it leases is within its statutory authority. § 616.6500 Investment in leased assets. An institution may acquire property to be leased that is consistent with current or planned leasing programs. § 616.6600 Leasing limit. All leases made by Farm Credit System institutions shall be subject to the lending and leasing limit in subpart J of part 614 of this chapter. § 616.6700 Stock purchase requirements. (a) Each System institution, except the Farm Credit Leasing Services Corporation, making an equipment lease under titles II or III of the Act must require the lessee to buy or own at least one share of stock or one participation certificate in the institution making the lease, in accordance with its bylaws. (b) The disclosure requirements of § 615.5250(a) and (b) of this chapter apply to stock (or participation certificates) bought as a condition for obtaining a lease. § 616.6800 Disclosure requirements. (a) Each System institution must give to each lessee a copy of all lease documents signed by the lessee within a reasonable time following lease closing. (b) Each System institution must make its decision on a lease application as soon as possible and provide prompt written notice of its decision to the applicant.