Rental costs are discussed in Office of Management and Budget (OMB) Circulars A-110, A-87, and A-122. Rental costs may be charged against the contract budget, but must be reasonable in light of rental costs of comparable property, if any; market conditions in the area; alternatives available; and the type, life expectancy, condition, and value of the property leased. The only limitations are as follows: (1) Rental costs under sale and lease-back arrangements are allowed only up to the amount of depreciation or the change that would be allowed had the contract agency continued to own the property. (2) Rental costs under less-than-arms-length leases are allowed only up to the amount that would be allowed if the contractor held the title to the property. (3) Rental costs under leases that create a material equity in the leased property are allowed only up to the amount that would be allowed had the organization purchased
the property on the date the lease agreement was executed (that is, depreciation, use allowances, taxes, insurance, but not interest expense and other unallowable costs). For this purpose, a material equity in the property exists if the lease is noncancellable or is cancelable only if some remote contingency occurs and has one or more of the following characteristics: (A) The organization has the right to purchase the property for a price which at the beginning of the lease appears to be substantially less than the probable fair market value at the time it is permitted to purchase the property (commonly called a lease with a bargain purchase option). (B) Title to the property passes to the organization at some time during or after the lease period. (C) The term of the lease (initial term plus periods covered by bargain renewal options, if any) is equal to 75% or more of the economic life of the leased property (that is, the
period of the property is expected to be economically usable by one or more users). (D) The present value of the minimum lease payments at the beginning of the lease is at least 90% of the fair market value of the leased asset at that time.
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| Source Note: The provisions of this §732.250 adopted to be effective May 1, 1987, 12 TexReg 350; duplicated effective September 1, 1992, as published in the Texas Register September 11, 1992, 17 TexReg 6279; amended to be effective October 1, 1998, 23 TexReg 9421.
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