LoDA.2.1. Lease Preparation and Format. Leases are prepared using the Defense Security Assistance Management System (DSAMS). Implementing Agencies (IAs) are responsible for preparing leases in accordance with the Foreign Military Sales (FMS) guidance (refer to Chapter 5). The Military Department (MILDEP) confirms the effective date, signs and forward the final lease to DSCA in the Proposed Status. The IA can make changes or updates once the lease is in “Proposed Status.”

LoDA.2.2. Lease Duration. The minimum lease period is one month. The maximum lease period is 60 months plus the specified period of time required to complete major refurbishment of the leased articles prior to delivery. The draft lease includes the initiation and finish dates and the proposed timeframe the lease should start after staffing and Congressional Notifications (CNs) are complete. The lease must include a note that the USG may terminate the lease at any time during the lease period and require the immediate return of the defense article(s). Leases of less than 60 months may be extended via an Amendment, but the total period under a specific lease may not exceed 60 months plus the time needed for major refurbishment work. Unless otherwise specified within the terms and conditions, the lease period begins on the date shown at the beginning of the lease. This does not occur if initial deposit has not been paid. If the purchaser signs the lease after the proposed starting date, the lease must be amended to show the actual lease start date and to make any necessary adjustments to the payment schedule (See Section LoDA.2.3.4. Payment Schedules).

LoDA.2.2.1. Lease Format. The lease format, including sample data and preparation instructions, is provided in Figure LoDA.F1. through Figure LoDA.F5. This format may not be altered unless special circumstances require an exception to policy as authorized by DSCA. Additional provisions may be added to a lease when appropriate and with concurrence of DSCA (Office of International Operations (IOPS)), DSCA (Office of Strategy, Plans, and Policy (SPP)), and DSCA (Front Office, Office of the General Counsel (FO/OGC)). All FMS leases are bi-lateral. A multilateral FMS lease is not permitted.

LoDA.2.2.2. Lease Identification. The IA assigns a unique designator to each lease in DSAMS. The lease designator is composed of the FMS Customer Code, the IA code, and a 3-position code assigned by the IA. The lease designator is included on each lease page, all schedules, appendices, and accompanying documents included. FMS cases associated with leases must reference the lease designator(s), additionally, leases will reference the associated FMS support case.

LoDA.2.3. Lease Pricing.

LoDA.2.3.1. Rental Payment. The lessee must agree to pay in U.S. dollars all costs incurred by the USG for the leased articles, including reimbursement for depreciation of articles during the lease period. The rental payment is calculated in accordance with DoD Financial Management Regulations (DoD FMR) 7000.14-R, Volume 15, Chapter 7. Rental payments do not include an administrative charge.

LoDA.2.3.2. Exceptions. Certain leases do not require reimbursement of depreciation or may be eligible for waiver of reimbursement. DSCA must authorize the exception prior to the IAs notifying a potential lessee that a no-rent lease is available.

LoDA.2.3.2.1. Leases for the purposes of cooperative research or development, military exercises, or communications or electronics interface projects do not require reimbursement for depreciation and other costs incurred by the USG.

LoDA.2.3.2.2. The President may waive reimbursement of depreciation for any defense article(s) that has passed three-quarters of its normal service life if it is in the national security interests of the United States. This waiver authority is delegated to the DSCA Director in accordance with the provisions of DoD Directive (DoDD) 5105.65. When requesting this waiver, the IA must provide DSCA (Office of International Operations, Global Execution Directorate, Assistance & Monitoring Division (IOPS/GEX/AMD)) with the following information:

LoDA.2.3.2.3. The President may also waive reimbursement of depreciation in exchange for the lessee’s lease of defense articles to DoD on substantially reciprocal terms. In these cases, the President submits a detailed notification for each lease to the Speaker of the House, the Committee on Foreign Affairs of the House, the Committee on Armed Service of the House, the Committee on Foreign Relations of the Senate, and the Committee on Armed Services of the Senate. Unless Congress provides special authority otherwise, this waiver authority may be exercised only for the current fiscal year and only with respect to one partner.

LoDA.2.3.3. Replacement of Lost or Damaged Items. The lessee must agree to pay the costs of restoration or replacement if the articles are lost, damaged, or destroyed while leased. If items are lost or destroyed, the partner is charged the replacement cost. These costs are adjusted for either 1) the depreciated value of the destroyed item if the United States intends to replace the articles, or 2) the actual article value (depreciated value of the most recent procurement cost of the article) if the United States does not intend to replace the articles. These charges may be recouped through an amendment or modification of the annotated support case listed in the lease or through establishment of a separate Letter of Offer and Acceptance (LOA).

LoDA.2.3.4. Payment Schedules. Schedule A of each lease identifies the replacement cost(s) of the item(s) being leased and the schedule for rental payment due to the USG. The IA establishes a payment schedule on a quarterly billing cycle compatible with the FMS billing cycle. If the quarterly cycle does not provide for payment prior to the effective date of the lease, an initial deposit is required to assure that payment is received in advance of the month in which a rental charge is incurred. Billings to the partner or international organization lessee are based on this schedule of payments and are included on a separate Defense Department (DD) Form 645A with the partner’s quarterly FMS billing statement. The IA confirms that payment schedules are updated for any extensions, delivery schedule changes, or other Amendments that may result in a change to the lease value or schedule of payments. Defense Finance and Accounting Services (DFAS) deposits receipts from lease rental payments into the Miscellaneous Receipts Account 3041 (FMS Recoveries, DoD Lease Costs) in accordance with the Treasury Financial Manual, Supplement to Volume 1.

LoDA.2.4. Use of Foreign Military Financing or Military Assistance Program Merger Funds. When authorized by DSCA (Office of Business Operations (OBO)) and DSCA (IOPS), Foreign Military Financing (FMF) or Military Assistance Program (MAP) Merger funds may be used to fund LOAs for services associated with a lease. However, the Arms Export Control Act (AECA) does not allow the use of these funds for rental payments for leases made pursuant to AECA, section 61 (22 U.S.C. 2796), except for leases of aircraft for counter-narcotics purposes pursuant to Foreign Assistance Act (FAA), section 484 (22 U.S.C. 2291c). In such instances, the total lease cost (including any renewals) is an initial, one-time payment of an amount equivalent to the aircraft price as if it were sold on an LOA. Refer questions regarding proper sources of funding for leases should be directed to DSCA (OBO).

LoDA.2.5. Who Can Lease Defense Articles? Defense articles may be leased to a partner or international organization if that partner or organization is eligible for FMS purchases. See Table C4.T2A. for a list of eligible partners and organizations.

LoDA.2.6. What Can Be Leased. The President may lease defense articles from DoD stock to eligible partners or international organizations if there are compelling foreign policy and national security reasons for providing such articles on a lease basis rather than as a sale; the articles are not needed for the time for public use; and the effects of the lease on the national technology and industrial base are considered, particularly the extent, if any, to which the lease reduces the opportunity of U.S. manufacturers to sell new equipment to the lessee.

LoDA.2.6.1. Naval Vessel Leases. Naval vessel leases are subject to additional requirements contained in 10 U.S.C. 8677, which requires specific statutory authorization for the lease of naval vessels in excess of 3000 tons or less than 20 years of age, and CN for other naval vessels. AECA, Subchapter VI requirements also apply to naval vessel leases unless the separate legislation expressly provides otherwise.

LoDA.2.6.2. Counternarcotics Aircraft. The FAA, section 484 (22 U.S.C. 2291c), requires aircraft made available to a partner primarily for counternarcotics-related purposes will be provided on a lease or loan basis, rather than by sale or grant, unless to do so is determined contrary to the national interest and Congress is so notified. The FAA further requires that if FMF is used to finance the leasing of aircraft, the entire cost of any such lease (including any renewals) will be an initial, onetime payment of the amount which would be the sales price for the aircraft if they were sold via FMS.