TRAC Lease or Open End Lease
This type of lease contains a Terminal Rental Adjustment Clause (TRAC) that states that at the end of the lease term, the equipment will be sold, either to the lessee or to a third party, for its Fair Market Value.
Pursuant to the Terminal Rental Adjustment Clause, if the NET proceeds received by the lessor, upon sale of the equipment, were in excess of the Terminal Rental Adjustment Clause amount (also referred to as the residual) established in the lease, such excess proceeds would be paid to the lessee. Conversely, if the vehicle is sold for less than the established TRAC amount, the lessee is required to reimburse the lessor for the short fall.
This lease structure is common for business owners who desire the option to purchase the vehicle for a pre-determined price at the end of the lease.