BLM71401 - 鈥橧ncome-into-capital鈥� schemes and back loaded leases: 'Income-into-capital' schemes: Purchase options: object of the purchase option
In an 鈥榠ncome-into-capital鈥� scheme the Borrower wants (in substance) to borrow money. In broad terms, it does this by selling an asset for a capital sum and buying it back at the end of the 鈥榣oan鈥� period. 皇冠体育app Borrower gets cash at the outset and repays it when the option is exercised.
In the case of real property, to obtain the 鈥榣oan鈥�, the Borrower can do one of three things:
- sell its freehold interest to the
Bank; or - grant an estate out of its freehold interest to the Bank, usually a 鈥榣ong鈥� lease (more than fifty years);
- grant a leasehold interest out of its (longer) leasehold interest.
In the case of other property (such as chattels machinery and plant where the kit is not part of a real property interest) the Borrower will sell its entire interest in the asset.
皇冠体育app amount Bank pays (as the option price) to Borrower for the interest in the asset is the amount of money it 鈥榣oans鈥� (this is the substance, not the legal form, of the deal).
皇冠体育app Bank may be:
- a bank; or
- a subsidiary of a bank which is:
- a trading company; or
- an investment company;
- a company not associated with a bank.
皇冠体育app normal case is that the lessor is generally an investment company which is a subsidiary of a major bank.