The Appeals Court for the Federal Court of Claims recently reversed a lower-court opinion on the Consolidated Edison Company of New York, Inc. vs. United States case. The court concluded that Consolidated Edison’s Lease-In Lease-Out (LILO) transaction did not have economic substance and the purported lease was not a “true lease”. The Appeals Court ruled that because the entity that held the sublease was likely to exercise the purchase option, that as a result the “headlease” should be treated as the true lease. In the appeal, Consolidated Edison argued that the legal standard was instead that the option should only be a problem if it was “certain” to be exercised, of which the Appeals Court ruled that there was a “reasonable likelihood” that the purchase option would be exercised.
Click here to learn more about the Consolidated Edison case.
Click here to read the original Claims Court opinion.
