Leasing Glossary of Terms
Before you lease artwork arm yourself with the tools you need to understand art leasing. Below are common leasing terms and their definitions.
Acquisition Fee: A charge for processing a lease. Even though this seems like a nonessential fee, it may not be negotiable.
Capitalization cost (cap cost): The total price of the artwork which the lessor uses to calculate the amount that the customer will be paying. This is equivalent to the purchase price of artwork that's sold.
Cap Cost Reduction: Equivalent to a down payment on purchased artwork, this is the amount that you pay when signing the lease, in addition to any separate fees that are assessed. When you pay a larger sum initially, monthly payments will be lower. A smaller cap cost reduction means a higher monthly payment. The value of your trade-in (if any) can be applied as part of this amount.
Disposition Fee: An amount to be paid at the end of the lease term, to cover costs of preparing the returned artwork for sale.
Early Termination Fee: A penalty assessed if you choose to end the contract earlier. Lessors justify this because depreciation is highest in the early portion of a artwork's life, so a prematurely terminated lease cuts heavily into their earnings. The penalty is likely to be hefty.
End-of-Lease Purchase Price: An agreed-upon price that you will pay when the lease is up, if you choose to keep the artwork.
Gap Insurance: In most cases, your regular home or business insurance covers the leased artwork. If the artwork is totally damaged, however, it could be worth less than an insurer will pay. Gap insurance covers the difference between the cash value of the artwork and what you still owe on the lease contract. Some leases include this in the contract.
Lease Term: A period of months during which you have use of the artwork and will pay an agreed-upon monthly payment. Lease terms of 24 or 36 months are most common, but 12-month leases or 60-month contracts can be obtained.
Lessee: The person who leases a artwork from an art dealer or other organization.
Lessor: The art dealer or other organization that leases artwork to a customer.
Monthly Payment: Amount that you are required to pay to the lessor or its agent every month, through the lease term.
Purchase Option: The right to buy the artwork that you've leased, at the end of the lease term, for a stated price.
Residual Value: A prediction of what the artwork is likely to be worth as it ages, usually expressed as a percentage of its original price. Residual values may be supplied for artwork that is 24, 36, or 48 months old.
Security Deposit: A deposit, usually refundable, required before the lease contract takes effect.