This section provides requirements, responsibilities and procedures to lease property for James Madison University. Property leases include leases of real property, such as buildings, office and classroom space, storage space, and land. Property leases also include equipment leases, rentals and installment purchases. Capital Project request guidelines incorporate capital leases for the acquisition of land and buildings into the Capital Process. University departments should request real property leases, rentals, and installment purchases, whatever the type of funding source, through Real Property/Space Management. Departments should request equipment leases, rentals and installment purchases, whatever the type of funding source, through the Office of Procurement Services.
Listed in this subsection are general definitions of key terms associated with leases.
Bargain Purchase Option - A provision allowing the lessee, at his option, to purchase the leased property for a price that is sufficiently lower than the expected fair value of the property at the date the option becomes exercisable, that exercise of the option appears, at the inception of the lease, to be reasonably assured.
Buildings - All real estate, excluding land, used for shelter, dwelling, and other similar agency purposes. The Statewide definition is any "roofed structure for permanent or temporary shelter of persons, animals, vegetation, or equipment."
Capital Lease - The classification used for any lease that meets one or more of the following criteria:
From the lessor’s standpoint, a capital lease is also known as a Direct-Financing or Sales-Type lease.
Easement - A right, afforded to an individual or business, to use another’s real property, such as a right of way.
Equipment - Agency property of any kind that meets the following criteria:
Estimated Remaining Economic Life of Leased Property - The estimated remaining period during which one or more users, with normal repairs and maintenance, expect that the property was economically usable. The lessee must use the property for the purpose intended at the inception of the lease, with limitation by the lease term.
Executory Costs - Costs such as utilities, insurance, maintenance, and taxes included in the periodic payment, but not for the "leasing" or rental expense of the property. Such costs paid separately to the lessor or to another party, are not executory costs. These costs may increase, decrease or remain constant. The lessee may estimate these costs or obtain them from the lessor.
Expense Lease - A lease where the agency is the lessee and pays rent to another party.
Full Service Lease - A lease in which the landlord pays all operating and maintenance expenses usually including utilities, janitorial services, security and refuse removal (includes executory costs).
Initial Direct Costs - Those costs incurred by the lessor that are directly associated with negotiating and consummating completed leasing transactions. Such costs include, but are not necessarily limited to commissions, legal fees, cost of credit investigations, and cost of preparing and processing documents for new leases acquired. In addition, initial direct costs will not include that portion of a sales person’s compensation, other than commissions, and the compensation of other activities described above for leases not consummated. Initial Direct Costs should not include any portion of supervisory and administrative expenses or other indirect expenses, such as rent and facilities costs.
Inception Date/Beginning Date - The legal inception date is the date the lease agreement commitment begins. The legal inception date may distinguish this from the date that payment begins (beginning date), or the fiscal inception date.
Installment Purchase - Any asset, purchased by an installment payment plan and title to the asset passes upon signature, is considered an installment purchase. (Installment purchases must have approval of the State Treasury Board. The Office of Fixed Asset Accounting will obtain the State Treasury Board’s approval.)
Land - Non-expendable, real property whose title a state agency holds.
Lease - An agreement between two parties expressing the right to use property, plant, or equipment for a stated period. The two parties are the "lessor" and the "lessee." A lessor is the party who has title to the "leased property" and is giving the right to use the property to another party. A lessee is the party using the property.
Lease Purchase - A lease that contains a provision giving the lessee the right to purchase the asset during or at the end of the term of the lease. State Agencies generally cannot enter lease purchase agreements.
Lessee - The party using the "leased" property.
Lessor - The party giving the right to use the "leased" property to another party.
Minimum Lease Payments - The lessee’s minimum lease payments are the payments the lessee is obligated to make or that the lessor can require, and the payment required by any bargain purchase option.
The lessor’s minimum lease payments include all payments from the lessee as above, and any guarantee of the residual value or rental payments beyond the lease term by a third party, unrelated either to the lessee or lessor. A bargain purchase option should only include the minimum rental payments and bargain purchase option dollar amounts. Otherwise, minimum lease payments include the following:
Minimum Rental Payments - Those payments incurred that relate to the fixed obligation, in a leasing transaction, to make periodic rental payments. These payments do not include such items as contingent rentals, bargain purchase option amounts, and the like.
Operating Lease - The classification of a lease that does not meet any of the four (4) criteria for a capital lease. Refer to the definition of a "Capital Lease" in this subsection.
Present Value - The present value is the equivalent value now of a series of future payments discounted back to the present date at a specific rate of interest.
Rent/Rental - To obtain occupancy or use of another’s property, on a fixed or temporary basis, in return for regular payments. Payment, usually of an amount fixed by contract, made by one person or agency at specified intervals in return for the right to occupy or use the property of another. A rental arrangement is usually for up to twelve (12) months. A period of more than twelve (12) months is usually a lease arrangement.
Sublease - A lease of property granted by a lessee. To sublet or rent under a sublease agreement between a lessee and a third party, i.e., property owned by a lessor, who rents to a lessee, who subleases to a third party.
Temporary Lease - A lease with a known and fixed term of six (6) months or less.
Transfer of Ownership - When title (ownership) to the property passes from the lessor to the lessee.
The University must determine if the terms of a lease or installment purchase are favorable to the Commonwealth. One method for making this determination is the preparation of an economic analysis. The Office of Finanical Reporting prepares economic analyses for equipment leases and purchases, when deemed appropriate. Materiality of the potential acquisition and the cost benefit of preparing the analysis are factors in determining appropriateness. Real Property/Space Management prepares economic analyses for property eases.
When an economic analysis shows unfavorable lease terms (due to expected technological advances or when a vendor refuses to transfer title) the agency head or designee must approve acceptance of the lease.
Equipment financed by the Higher Education Equipment Trust Fund administered by the Virginia College Building Authority (VCBA) or the Treasury Board’s Financing Program does not require an economic analysis.
Acquisition or lease of real property by any state agency is subject to requirement of the Code of Virginia. Section 2.1-504.2 of the Code states in part:
"Not withstanding any provision of law to the contrary no state department, agency or institution shall acquire real property by gift, lease, purchase or any other means whatsoever, without the approval of the Governor . . . The Department of General Services shall review every proposed acquisition of real property by gift, lease, purchase or any other means whatsoever by any department, agency or institution of this Commonwealth. Upon the completion of its review, the Department shall recommend either approval or disapproval of such transaction to the Governor. . ."
"James Madison University Delegated Authority Capital Projects and Lease Activities" (the "manual"), as structured upon Commonwealth of Virginia Division Real Estate Services Real Property Management Manual, provides the policies and procedures for acquiring real property by lease. Administration of the manual and review and recommendation for approval of leased property as set forth in the manual, is performed by the Real Property and Space Management office of James Madison University (JMU). All JMU departments, shall follow the procedures set forth in the manual for the acquisition of new space by lease or for renewal of existing leases. Internal auditors of state departments, agencies and institutions, where available, shall periodically review conformance with the manual. Compliance will also be monitored by the Commonwealth of Virginia Division of Real Estate Services (DRES), the State Internal Auditor and the Auditor of Public Accounts.
The University must follow the Treasury Board Equipment Financing Program, administered by the State Department of Treasury, when considering an Installment or Lease purchase for $10,000 or greater and when it is from other than an established State contract.
Computer equipment leases must comply with all applicable guidelines issued by the Office of Information Technology.
• Contacts the Real Property/Space Management to define space needs and request space.
• Coordinates all activities to obtain and use either University or Non-University space with the Real Property/Space Management.
• Completes forms and provides information as requested by the, Real Property Administrator, Space Management Coordinator.
• Confirms that sufficient funds are available within the departmental budget to cover the cost of the lease.
• Sends JMU Purchase Requisitions and attachments to the Office of Real Property/Space Management.
• Provides information, as requested, for recording and reporting lease assets, to the Office of Finanical Reporting .
• Determines availability of and assigns University space for the University.
• Follows policies and procedures set forth in the " James Madison University Delegated Authority Capital Projects and Lease Activities" Manual to acquire new leases or renew existing leases.
• Coordinates all activities for University departments to acquire real property leases with Request of Proposal offerers and landlords.
• Determines availability of funds, not included in a current fiscal year departmental budget, to cover lease costs.
• Ensures that all real property lease contracts meet the requirements of the Office of the Attorney General.
• Advises the Office of Financial Reporting of plans to acquire capital leases. Provides documentation if requested.
• Distributes copies of new leases in effect and pertinent information on leased properties to Financial Reporting, Budget, Facilities Management, Institutional Research and Public Safety.
• Analyzes documentation and determines that a lease is an operating or a capital lease.
• Ensures that the University records all property lease asset data in University and State Systems for reporting and insurance purposes.
• Ensures that all lease data and activity is fully and properly disclosed in University’s financial statements according to "Generally Accepted Accounting Principles," (GAAP). Provides the same information to the State Comptroller to include in the Commonwealth of Virginia Financial Statements.
• Contacts the Office of Fixed Asset Accounting when planning to enter into an equipment installment purchase or lease.
• Provides information and/or completes forms as requested by the Office of Procurement Services.
• Provides copies of contracts/purchase orders and any other pertinent documentation to the Office of Fixed Asset Accounting to record and report installment purchases, leases and rental agreements.
• Completes and returns lease confirmation requests distributed by the Office of Fixed Assets Accounting (generally once a year).
• Coordinates all activities with University Departments to acquire equipment leases, and installment purchases.
• Determines the need for an economic analysis of potential leases and installment purchases and prepares the analysis if deemed appropriate.
• Reviews lease documentation and determine that the lease is an operating or capital lease.
• Administers the Treasury Board Equipment Financing Program for the University.
• Ensures that lease contracts meet the requirements of the Office of the Attorney General.
• Ensures that computer equipment leases comply with all applicable guidelines issued by the Department of Information Technology.
• Ensures proper classification and recording of all equipment leases in the Financial Information System (FIS), Commonwealth Accounting and Reporting System (CARS), and the Fixed Asset Accounting and Control System (FAACS).
• Ensures full and proper disclosure of all equipment lease activity in University Financial Statements according to "Generally Accepted Accounting Principles," (GAAP). Provides the same information to the State Comptroller to include in Commonwealth of Virginia Financial Statements.
• Ensures that all lease agreements fully disclose: the fair market value of the leased asset at the inception of the lease; executory costs; residual value of the leased asset; amount of the lease payments; frequency of lease payments; the lease term; renewal terms, conditions, options, penalties, or bargains, and options (bargain purchases, etc.) which transfer the ownership of the asset to James Madison University during, or at the end of, the lease.
• Contacts Real Property/Space Management to define space needs and request the use of University or non-University space.
• When University space is not available, completes a JMU Purchase Requisition, Space Questionnaire and Notice of Lease Intent form. (Real Property will send blank copies of the Questionnaire and Notice of Lease Intent forms to the department.)
• Attaches completed Space Questionnaire and Notice of Lease Intent forms to the Purchase Requisition form. Sends the requisition and attachments to the Office of Financial Reporting.
• Provides information for, or completes draft copies of the Lease Justification and Request for Proposal forms.
• Compares encumbrance and payment transactions posted to the FIS departmental printouts to departmental records. Notifies the Office of Financial Reporting of any differences.
• Determines that University space is or is not available and advises the department of availability or non-availability.
• When University space is available advises the department of the location and requirements to use the space.
• Advises department to prepare a JMU Purchase Requisition form for leasing Non University owned
space. Sends a Space Questionnaire form and Intent to Lease form to the department for completion. Provides the fair market value price for Harrisonburg, Virginia to the department.
• Advises Budget Office and Financial Reporting of proposed lease costs for the intended fiscal period.
• Reviews Space Questionnaire and Intent to Lease forms. Requests additional information from the requesting department and/or other University offices and departments as needed.
• Prepares Lease Justification, Space Categorization and Request for Proposals for Lease of Space forms.
• Completes a formal inquiry to the Office of the Attorney General (if applicable as determined by Real Property) to determine the acceptability of lease contracts.
• Prepares an economic analysis of a prospective lease, from proposals offered, to determine if the terms of the lease are favorable.
• Negotiates terms and costs of the lease.
• Completes lease documents for the University and distributes fully executed documents to the JMU offices of Financial Reporting, Accounts Payable, the requesting department, the Landlord and the Division of Real Estate Services.
• Maintains and monitors lease files for the University.
• Reviews and forwards Lease Input Document to the Division of Engineering and Buildings, Real Property Management.
• Prepares payment vouchers (monthly) for properties leased by the University and forwards to the Office of Accounts Payable.
• Prepares capital outlay forms and documentation required for capital leases.
• Advises the Office of Financial Reporting of plans to acquire capital leases. Provides copies of forms and documentation if requested.
• Completes SCHEV On-Line and Deleted Space survey and includes leased properties.
• Receives a copy of the Lease Justification form from Real Property/Space Management. AVP Financial Services reviews and approves the lease justification, requests additional information as needed and determines that the agreement to acquire property is truly a lease. Determines that the lease is either an operating or a capital lease.
• Notifies Real Property if a lease request is a capital lease.
• Reviews and updates the Statement of Values received from the Division of Risk Management to ensure adequate insurance coverage. Returns completed forms to the Division of Risk Management.
Receives payment documents for lease payments, verifies amounts and dates of payments according to the lease document and/or a certified correct invoice.
Processes monthly or annual lease payments.
• Prepares Purchase Requisition forms for equipment installment purchases, leases and rentals. Forwards completed forms to the Office of Procurement.
• Completes and distributes the Leased/Rented Equipment Installation Form. (This form also serves as a receiving report.)
• Completes Accounting Vouchers or other payment documents, if required by the Office of Accounts Payable, for monthly payments.
• Confirms lease payments for the fiscal year as requested by the Office of Fixed Assets.
• Prepares economic analyses for prospective equipment installment purchases, leases or rental agreements as deemed appropriate.
• Obtains Treasury Board approval to finance items costing $10,000 or greater, not financed through the Treasury Board.
• Completes and sends forms to the Department of Accounts to update FAACS.
• Determines if leases are Capital or Operating leases.
• Confirms lease payments made during the fiscal year with departments.
• Enters lease commitments into the FIS to encumber funds.
• Records capital leases in the FIS.
• Includes disclosure of operating leases in the Financial Statements.
• Prepares documents necessary to finance equipment through the State Treasury Board financing program.
• Verifies payments against terms documented in the executed lease or rental agreement.
• Receives payment documents for lease, rental and installment payments, verifies amounts and dates of lease payments to the approved payment schedule.
• Refers to the Leased/Rented Equipment Installation Form to determine the starting date of the lease and receipt of the leased items.
• Processes documents for lease payments.
• Receives and processes approved Purchase Requisition forms for equipment installment purchases, leases and rentals.
• Provides information as requested, to prepare the economic analysis, to the Office of Financial Reporting.
• Provides information to the Office of Financial Reporting to determine if a lease is a capital or operating lease.
• Retains written justification for leasing an item when the economic analysis results suggest an outright purchase or an installment purchase. (For example, a rapid change in technology or the vendor will not pass title.)
• Determines the method of procurement, prepares the purchase order and obtains the item.
• Provides the terms, payment schedule and executory cost of leases to the Office of Financial Reporting and the Office of Accounts Payable.
• Sends a Lease/Rented Equipment Installation Form and a copy of the purchase order to the department originating the Purchase Requisition form.
The University requires this form when a department receives and accepts leased/rented equipment. The form establishes the receiving date for the Office of Accounts Payable.
An electronic blank form is available online.
Complete four forms.
Send one completed form to the Office of Fixed Asset Accounting, One to the Office of Accounts Payable; and one to the Office of Procurement Services. Retain one copy in Departmental files.
Following are instructions for the preparation of the Leased/Rented Equipment Installation Form.
Date: The date the department completes the form.
Department Name: The name of the department receiving the leased/rented equipment.
Department's Organization No.: The five-digit organization number assigned to the department.
Account No.: The account code for the item of equipment being leased or rented.
Purchase Order No.: The number of the purchase order issued for the leased/rented equipment.
Vendor's Name: The name of the vendor providing the leased or rented equipment.
Equipment Manufacturer: The name of the company that manufactured the equipment.
Equipment Model Number: The model number of the leased/rented equipment item.
Equipment Serial Number: The serial number of the leased/rented equipment item.
Monthly Lease/Rent Payment Amount: The amount of the monthly lease/rent payment. DO NOT include costs associated with overages for copy machines, maintenance agreement or incidental costs.
Installation Date: The date the department receives and accepts the leased or rented equipment.
Lease Period: Enter an "X" in the box indicating the number of months that the lease is in effect.
Contact Person (Signature): The name of the departmental contact for the lease.
Telephone No.: The telephone number for the contact person.
Print Name: The name of the contact person.
Title: The title of the contact person.