Section 1--203. Lease Distinguished From Security Interest.

(a) Whether a transaction in the form of a lease creates a lease or
security interest is determined by the facts of each case.

(b) A transaction in the form of a lease creates a security interest
if the consideration that the lessee is to pay the lessor for the right
to possession and use of the goods is an obligation for the term of the
lease and is not subject to termination by the lessee, and:

(1) the original term of the lease is equal to or greater than the
remaining economic life of the goods;

(2) the lessee is bound to renew the lease for the remaining economic
life of the goods or is bound to become the owner of the goods;

(3) the lessee has an option to renew the lease for the remaining
economic life of the goods for no additional consideration or for
nominal additional consideration upon compliance with the lease
agreement; or

(4) the lessee has an option to become the owner of the goods for no
additional consideration or for nominal additional consideration upon
compliance with the lease agreement.

(c) A transaction in the form of a lease does not create a security
interest merely because:

(1) the present value of the consideration the lessee is obligated to
pay the lessor for the right to possession and use of the goods is
substantially equal to or is greater than the fair market value of the
goods at the time the lease is entered into;

(2) the lessee assumes risk of loss of the goods;

(3) the lessee agrees to pay, with respect to the goods, taxes,
insurance, filing, recording, or registration fees, or service or
maintenance costs;

(4) the lessee has an option to renew the lease or to become the owner
of the goods;

(5) the lessee has an option to renew the lease for a fixed rent that
is equal to or greater than the reasonably predictable fair market rent
for the use of the goods for the term of the renewal at the time the
option is to be performed; or

(6) the lessee has an option to become the owner of the goods for a
fixed price that is equal to or greater than the reasonably predictable
fair market value of the goods at the time the option is to be
performed.

(d) Additional consideration is nominal if it is less than the
lessee's reasonably predictable cost of performing under the lease
agreement if the option is not exercised. Additional consideration is
not nominal if:

(1) when the option to renew the lease is granted to the lessee, the
rent is stated to be the fair market rent for the use of the goods for
the term of the renewal determined at the time the option is to be
performed; or

(2) when the option to become the owner of the goods is granted to the
lessee, the price is stated to be the fair market value of the goods
determined at the time the option is to be performed.

(e) The "remaining economic life of the goods" and "reasonably
predictable" fair market rent, fair market value, or cost of performing
under the lease agreement must be determined with reference to the facts
and circumstances at the time the transaction is entered into.