A purchase option that allows the lessee to purchase the equipment at the end of the lease for $1, or some other minimal payment, such that they are extremely likely to exercise the option and the lessor is unlikely to have a “meaningful residual interest.” The fact that the lessor has no residual interest in the asset at the end of the term is enough to “re-characterize” it as a secured sale or financing transaction rather than a true lease. (Other names sometimes used include Nominal Purchase Option, Bargain Purchase Option, $1 Purchase Option, $1 Out, Buck Out, $101 Purchase Option, and more).
