What does NOT contribute to the creation of a security interest in a lease?

What does NOT contribute to the creation of a security interest in a lease?

• A. The lessee is obligated to pay substantial taxes
• B. The present value of lease obligations equals the FMV
• C. The lessor assumes all risk of loss
• D. The lessee can own the goods at nominal cost

Answer: (C)

In the context of creating a security interest in a lease, it is essential to understand the role of various factors. A security interest typically arises in situations where the lessee has certain obligations and rights that give the lessor a claim against the lessee's property. The correct answer highlights that when the lessor assumes all risk of loss, this does not contribute to the creation of a security interest. In a lease agreement, if the lessor retains all the risks associated with the leased property, it indicates that the lessee does not have an ownership interest in the goods. Without this risk of loss being borne by the lessee, there is no basis for establishing a security interest. Therefore, the lessor being responsible for all risks keeps the transaction within the realm of a true lease rather than transforming it into a security transaction. In contrast, the other factors mentioned, such as the lessee's obligation to pay substantial taxes, the relationship between the present value of lease obligations and fair market value, and the ability for the lessee to acquire the goods at a nominal cost, all contribute to creating a security interest. These elements indicate a level of obligation or potential ownership that can create a claim from the lessor against the lessee's property,

In the context of creating a security interest in a lease, it is essential to understand the role of various factors. A security interest typically arises in situations where the lessee has certain obligations and rights that give the lessor a claim against the lessee's property.

The correct answer highlights that when the lessor assumes all risk of loss, this does not contribute to the creation of a security interest. In a lease agreement, if the lessor retains all the risks associated with the leased property, it indicates that the lessee does not have an ownership interest in the goods. Without this risk of loss being borne by the lessee, there is no basis for establishing a security interest. Therefore, the lessor being responsible for all risks keeps the transaction within the realm of a true lease rather than transforming it into a security transaction.

In contrast, the other factors mentioned, such as the lessee's obligation to pay substantial taxes, the relationship between the present value of lease obligations and fair market value, and the ability for the lessee to acquire the goods at a nominal cost, all contribute to creating a security interest. These elements indicate a level of obligation or potential ownership that can create a claim from the lessor against the lessee's property,