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A Fair Market Value (FMV) lease is one of the two common types of traditional lease options, the other being the $1 Buyout Lease. An FMV lease does not automatically result in ownership after all payments are made. Therefore its monthly payment may be considered a fee for usage. If ownership is desired at end of term, an additional "fair market value" buyout amount must be negotiated and paid at that time, otherwise the equipment must be returned to the leasing company.
One common misconception is that an FMV lease is inherently an operating lease (OPEX). From an accounting perspective, some FMV’s may qualify to be treated as an OPEX lease, but not all will. Consult with your accountant to determine the appropriate accounting treatment of an FMV lease.
Utilizing an FMV lease for telecommunications and technology equipment can be a smart decision in circumstances where the FMV meets Financial Standards Accounting Board (FSAB) accounting guidelines to be treated as an operating expense. Choosing an OPEX lease for purchasing a unified communications or other technology solution allows organizations to avoid wasting capital on depreciating assets and to protect against any potential negative impact additional liabilities may have on financial ratios.
At the rate technology changes, how could a business know if they want to own their telecommunications and unified communications solution in three to five years? With an FMV lease, you can make this decision at the end of the contract. While greater flexibility and control during the term can be achieved with alternatives to FMV and traditional lease options like TAMCO Shield, at least an FMV allows customers to avoid finding themselves stuck owning outdated technology at the end of term.
When acquiring technology solutions, an FMV lease may have some potential benefits if it qualifies to be treated as an operational expense (OPEX). However, TAMCO’s Shield lease options for cloud and premise solutions provide all the value of an FMV with greater flexibility and control. Shield is specifically designed to meet accounting guidelines for off-balance sheet treatment, it provides an exclusive Solution Replacement Guarantee, it adds protection of Act of God coverage, and Shield offers multiple end of term options to address whatever the customer’s needs may be at that point in time.