Michigan Compiled Laws

Mich. Comp. Laws § 440.1203 (2026)

Transaction in form of lease; "remaining economic life of the goods" and "reasonably predictable" fair market rent, fair market value, or cost of performing under lease agreement; determination.

✓ current as of July 2026

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UNIFORM COMMERCIAL CODE

Act 174 of 1962

440.1203 Transaction in form of lease; "remaining economic life of the goods" and "reasonably predictable" fair market rent, fair market value, or cost of performing under lease agreement; determination.

Sec. 1203.

(1) Whether a transaction in the form of a lease creates a lease or security interest is determined by the facts of each case.

(2) A transaction in the form of a lease creates a security interest if the consideration that the lessee is to pay the lessor for the right to possession and use of the goods is an obligation for the term of the lease and is not subject to termination by the lessee, and any of the following are met:

(a) The original term of the lease is equal to or greater than the remaining economic life of the goods.

(b) The lessee is bound to renew the lease for the remaining economic life of the goods or is bound to become the owner of the goods.

(c) The lessee has an option to renew the lease for the remaining economic life of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.

(d) The lessee has an option to become the owner of the goods for no additional consideration or for nominal additional consideration upon compliance with the lease agreement.

(3) A transaction in the form of a lease does not create a security interest merely because any of the following are met:

(a) The present value of the consideration the lessee is obligated to pay the lessor for the right to possession and use of the goods is substantially equal to or is greater than the fair market value of the goods at the time the lease is entered into.

(b) The lessee assumes risk of loss of the goods.

(c) The lessee agrees to pay, with respect to the goods, taxes, insurance, filing, recording, or registration fees, or service or maintenance costs.

(d) The lessee has an option to renew the lease or to become the owner of the goods.

(e) The lessee has an option to renew the lease for a fixed rent that is equal to or greater than the reasonably predictable fair market rent for the use of the goods for the term of the renewal at the time the option is to be performed.

(f) The lessee has an option to become the owner of the goods for a fixed price that is equal to or greater than the reasonably predictable fair market value of the goods at the time the option is to be performed.

(4) Additional consideration is nominal if it is less than the lessee's reasonably predictable cost of performing under the lease agreement if the option is not exercised. Additional consideration is not nominal if either of the following are met:

(a) When the option to renew the lease is granted to the lessee, the rent is stated to be the fair market rent for the use of the goods for the term of the renewal determined at the time the option is to be performed.

(b) When the option to become the owner of the goods is granted to the lessee, the price is stated to be the fair market value of the goods determined at the time the option is to be performed.

(5) The "remaining economic life of the goods" and "reasonably predictable" fair market rent, fair market value, or cost of performing under the lease agreement must be determined with reference to the facts and circumstances at the time the transaction is entered into.

History: 1962, Act 174, Eff. Jan. 1, 1964 ;-- Am. 2012, Act 86, Eff. July 1, 2013

Notes of Decisions

Cited in 22 cases (2 in the last 5 years), 1974–2022 · leading case: Gen. Motors Corp. v. Dep't of Treasury, 644 N.W.2d 734 (Mich. 2002).

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Gen. Motors Corp. v. Dep't of Treasury, 644 N.W.2d 734 (Mich. 2002). · cites it 4× “§ 440.1203, part of Michigan's version of the Uniform Commercial Code.”

Fodale v. Waste Mgmt. of Michigan, Inc, 718 N.W.2d 827 (Mich. Ct. App. 2006). · cites it 4× “" MCL 440.1203. Moreover, the parties could not waive this obligation: The effect of provisions of this act may be varied by agreement, except as otherwise provided in this act and except that the obligations of good faith, *841 diligence, reasonableness and care prescribed by…”

Gorman v. Am. Honda Motor Co., 839 N.W.2d 223 (Mich. Ct. App. 2013). · cites it 2× “6 Thus, plaintiff asserts she may maintain an independent action for a breach of the obligation of good faith that was provided for in MCL 440.1203 when she brought her claims: “Every contract or duty within this act imposes an obligation of good faith in its performance or…”

Cont'l Oil Co. v. Citizens Trust & Sav. Bank, 244 N.W.2d 243 (Mich. 1976). · cites it 9× “b) Duty Imposed Under MCLA 440.1203; MSA 19.1203. A secured creditor who has actual knowledge of a debtor’s name change which creates a secret lien is also under a duty to attempt to refile or amend its financing statement under MCLA 440.”

GEO Fin., LLC v. Univ. Square 2751, LLC, 105 F. Supp. 3d 753 (E.D. Mich. 2015). · cites it 17× ““Whether a transaction in the form of a lease creates a security interest is determined ' under [ Mich. Comp. Laws § 440.1203 (Michigan’s enactment of UCC § 1-203)].”

Ward's Equip., Inc. v. New Holland North Am., Inc., 493 S.E.2d 516 (Va. 1997). “See also Mich. Comp. Laws § 440.1203 (1994); Va. Code § 8.”

Fed. Deposit Ins. Corp., in Its Corp. Capacity v. Richard M. Wood, 758 F.2d 156 (6th Cir. 1985). “Mich.Comp.Laws Ann. § 440.-3305 (1967); U.”

Yamaha Motor Corp., USA v. Tri-City Motors & Sports, Inc., 429 N.W.2d 871 (Mich. Ct. App. 1988). · cites it 2× “MCL 440.1203, 440.9105(4); MSA 19.1203, 19.”

Lorenz Supply Co. v. Am. Stand., Inc., 39 U.C.C. Rep. Serv. (West) 1169 (Mich. 1984). “MCL 440.1203; MSA 19.1203. See J W Knapp Co v Sinas, 19 Mich App 427 ; 172 NW2d 867 (1969).”

Wilson Leasing Co. v. Seaway Pharmacal Corp., 220 N.W.2d 83 (Mich. Ct. App. 1974). · cites it 2× “[8] MCLA 440.1203; MSA 19.1203. [9] MCLA 440.”

Check Reporting Servs., Inc v. Michigan Nat'l Bank-Lansing, 478 N.W.2d 893 (Mich. Ct. App. 1991). “Crs relies on § 1-203 of the Uniform Commercial Code, MCL 440.1203; MSA 19.1203, which provides that an obligation of good faith is imposed on the performance and enforcement of every contract or duty within the code.”

In Re Darling Lumber, Inc., 56 B.R. 669 (Bankr. E.D. Mich. 1986). · cites it 2× “The court held that where the secured party knew, prior to the execution of the security agreement and financing statement, that the debtor intended to change its name shortly thereafter, by failing to file an amended financing statement reflecting the name change, it had failed…”

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— Mich. Comp. Laws § 440.1203(3) — 1 case

Sutton Leasing, Inc. v. Vets. Rideshare, Inc. (E.D. Mich. 2020).

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