A specialized version of an open end lease used in the United States primarily for automobiles and light-duty trucks. TRAC is an acronym for "Terminal Rent Adjustment Clause," an arrangement featuring a final rental adjustment on the lease which occurs after the vehicle is removed from service and sold.
This adjustment is either an additional rental amount or a credit to the Lessee's account, the determination based on comparing the sale proceeds of the leased vehicle versus the "Book Value" established under the contract. The "Book Value" is determined by allocating a portion of each monthly rental payment (the "Reserve") to a "Depreciation Reserve" account which credits the reserve payments against the original value of the vehicle on the Lessor's books.
TRAC leases for automobiles and light duty trucks in the United States can be treated as "Operating Leases" for the Lessee's accounting purposes, i.e., they are "off balance sheet." TRAC Leases are the predominant form of leasing for large corporate fleets in the United States and Canada.