Bargain Renewal Option

Often, a lease agreement will include a clause which gives the lessee the ability to extend or renew the lease of an asset at below-market rates. Including this option in the agreement would require the lease classification to be that of "capital" (asset is treated as lessee's property for accounting purposes and remains on their balance sheet), rather than "operating" (payments considered as rent and thus operating expenses, with the asset not being listed on the balance sheet).

So, let's say a hole-boring machine is worth $25,000/year and the lease agreement contains a bargain renewal option. In this situation, the lessee could trigger the clause and obtain a lease on the equipment for $18,000/year. Better than a hole in the head.