DISCLOSURE OF FINANCIAL INTERESTS

LEASES OF VEHICLES
AS ASSETS AND LIABILITIES

To:        Name withheld at person’s request (Sarasota County)

SUMMARY:

For the purposes of filing a CE Form 6, Full and Public Disclosure of Financial Interests, the possessory interest in a vehicle leased for personal use is an asset and must be disclosed if its value exceeds $1,000. The asset value of a lease is the vehicle’s present value minus the lease residual. A vehicle lease also is considered a liability and must be disclosed on the CE Form 6 if the liability exceeds $1,000. The unsatisfied remaining lease obligation--the sum of all past due and unpaid prospective lease payments--is the amount of the liability.

QUESTION 1:

In making full and public disclosure of financial interests pursuant to Article II, Section 8, Florida Constitution, and Section 112.3144, Florida Statutes, must a public officer disclose a lease interest in a vehicle for personal use as an asset when completing Part B of CE Form 6, Full and Public Disclosure of Financial Interests? If so, how should it be valued, and may the value of the lease interest be aggregated with household goods and personal effects or must it be individually listed?

Question 1 is answered as follows.

You are a county Property Appraiser and, as such, you are required to file CE Form 6, Full and Public Disclosure of Financial Interests. You write that you are about to lease a vehicle and that the most attractive offer--the offer you presumably will accept--will require you to make a one-time payment in advance to cover the entire three-year lease term for the vehicle.

Article II, Section 8, Florida Constitution, requires that “all elected constitutional officers and candidates for such offices and, as may be determined by law, other public officers, candidates, and employees shall file full and public disclosure of their financial interests.” It further states that “Full and public disclosure of financial interests shall mean filing with the custodian of state records by July 1 of each year a sworn statement showing net worth and identifying each asset and liability in excess of $1,000 . . . .”

We have consistently found that an asset is anything, tangible or intangible (and real property), that can be made available for the payment of debts. See CEO 78-1, 78-95, 87-84, 89-5, 12-10. We have found that various interests in title are assets requiring disclosure, such as jointly held property, CEO 74-2, property held in tenancy by the entirety, CEO 82-30, and partnership property, CEO 95-1. We also have found that where equitable title to property vests in an individual, but the legal title does not, as is the case with the beneficiary of a trust, that property interest also must be disclosed. CEO 83-3. To date, however, we have not addressed whether a possessory interest in a good, without any accompanying interest in title, as is the case for a lease of an automobile for a term, should be disclosed as an asset.

We find that a lease interest is an asset requiring disclosure when its fair market value exceeds $1,000. A lease represents a right of use and that right can be alienated to satisfy one’s debts in a variety of ways. This possessory right can be sold or subleased, as is contemplated by Florida’s adoption of Article 2A (“Leases”) of the Uniform Commercial Code. See Section 680.305 (1), Florida Statutes, (“a buyer or sublessee from the lessee of goods under an existing lease contract obtains, to the extent of the interest transferred, the leasehold interest in the goods that the lessee had or had power to transfer and . . . takes subject to the existing lease contract.”). Leases also are considered personal property that can be mortgaged. Gould, Inc. v. Hydro-Ski Intern. Corp., 287 So.2d 115, 116 (Fla. 4th DCA 1973). Because a lease of a good can be sold, subleased, and mortgaged to satisfy one’s debts, such a lease must be classified as an asset for purposes of the CE Form 6.

We find that the asset value of a vehicle lease is the present value of the vehicle minus the residual¹ listed in the lease.² This formula is applicable to all vehicle leases. If this subtraction yields an asset value in excess of $1,000, then the asset value of the lease must be disclosed.³

Because the asset in your case is the right of use of a vehicle for personal use, we deem it appropriate to aggregate the asset’s fair market value with the household goods and personal effects in Part B of CE Form 6. Section 112.3144(3), Florida Statutes.

Question 1 is answered accordingly.

QUESTION 2:

In making full and public disclosure of financial interests, what obligations deriving from a lease of a vehicle must a public officer report as liabilities in Part C of CE Form 6, Full and Public Disclosure of Financial Interests?

Question 2 is answered as follows.

Article II, Section 8, Florida Constitution, requires that “all elected constitutional officers and candidates for such offices and, as may be determined by law, other public officers, candidates, and employees shall file full and public disclosure of their financial interests.” It further states that “Full and public disclosure of financial interests shall mean filing with the custodian of state records by July 1 of each year a sworn statement showing net worth and identifying each asset and liability in excess of $1,000 . . . .”

Section 112.312(14), Florida Statutes, defines the term “liability” as

any monetary debt or obligation owed by the reporting person to another person, except for credit card and retail installment accounts, taxes owed, indebtedness on a life insurance policy owed to the company of issuance, contingent liabilities, or accrued income taxes on net unrealized appreciation. Each liability which is required to be disclosed by s. 8, Art. II of the State Constitution shall identify the name and address of the creditor.

We find that the unpaid portion of the lessee’s payment obligation--the sum of the past-due payments and all unpaid prospective lease payments--is the liability of a vehicle lease.⁴ If that sum exceeds $1,000, a reporting individual would be correct to list it in Part C of CE Form 6. In your case, where you will have no remaining payments to make as of the reporting date, you will have no liability arising from the vehicle lease.

Question 2 is answered accordingly.

ORDERED by the State of Florida Commission on Ethics meeting in public session on July 25, 2014, and RENDERED this 30th day of July, 2014.

____________________________________

Linda McKee Robison, Chair

^[1]In the context of a vehicle lease, the “residual” is the estimated value of a vehicle at the end of the lease term. The residual of a vehicle lease is always listed in the lease contract, as it is one of the variables necessary for the calculation of the monthly lease payment. The residual generally represents the price of the lessee’s buy-out option at the end of the lease term, if the lessee wishes to buy the vehicle at that time.

EXAMPLE: A lease of a 2012 Toyota Camry with 15 months of lease payments remaining at $292 per month, where the residual on the car is $14,000 and the car is in “Very Good” condition, having been driven 27,000 miles. Such a car would be worth $17,682, according to kbb.com. In this case, the value of the lease would be $3,682 ($17,682 - $14,000 = $3,682). Because the asset value of the lease is more than $1,000, the filer would disclose it as an asset.

^[3]For the purposes of calculating net worth, an asset value of zero or less than zero should be counted as zero. 4

^[4] For illustrative purposes, consider the following example, pertaining to the same vehicle as in Footnote 2, based on an actual lease on leasetrader.com (values calculated on June 13, 2014).

EXAMPLE: A lease of a 2012 Toyota Camry SE with 15 months of lease payments remaining at $292.00 per month. In this case, the liability of the lease would be $4,380.00 (15 x $292.00 = $4,380.00). Because the liability of the lease is more than $1,000, the filer would disclose it.