A conditional sale is the sale of an asset with title to the asset withheld from the buyer by the financing manufacturer, bank or finance company until all payment for the asset has been made.  A vendor supplies the asset to the buyer and either retains title or transfers it to the conditional seller, with title passing to the buyer only upon payment of the final installment.

The conditional buyer has the right to possess and use the asset while making the installment payments to the conditional seller.  In a conditional sale, asset title is transferred automatically to the buyer upon full payment at the end of the term of the transaction.  Unlike a lease purchase, the asset’s user is obligated to make the final payment and take title to the asset upon termination of the financing agreement.

Technically, finance leases that require noncancellable satisfaction are essentially conditional sale agreements with the creation of a security interest in the leased asset in favor of the lessor – “a lease intended as security”.  It is a nontax lease and the lessee is deemed the owner of the asset for income tax purposes and entitled to the tax benefits of ownership, such as depreciation.

Vendor “Leasing” Options for Commercial Customers
Leasing Option Purchase Price Transaction Type Full Payout Term (Months)
Option B FMV True Lease No 24-60
Option B’ BPO Conditional Sale Yes 24-60
Option B+ FMV Conditional Sale No 24-60
Option B$ $1 Conditional Sale Yes 24-60
Source: IBM PartnerWorld

Courts generally treat installment or conditional sale agreements as secured loans in the event of lessee bankruptcy and property of the bankruptcy estate.

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