PRIA Logo™
Take the PRIA Score
Title 10 — Armed ForcesRelease 119-73

§3674 Long-term lease or charter defined; substantial termination liability

Title 10 › Subtitle Subtitle A— - General Military Law › Part PART V— - ACQUISITION › Subpart Subpart C— - Contracting Methods and Contract Types › Chapter CHAPTER 257— - CONTRACTS FOR LONG-TERM LEASE OR CHARTER OF VESSELS, AIRCRAFT, AND COMBAT VEHICLES › § 3674

Last updated Apr 6, 2026|Official source

Summary

Defines when a lease, charter, service contract, or conditional sale counts as "long-term" and when the United States faces a large termination cost. A contract is long-term if it lasts five years or more, or if it lasts more than half the useful life of the vehicle, aircraft, or ship. A shorter initial term can still be long-term if options to renew make the total five years or more. If the owner first puts the item in service under the deal, or it has been in service less than one year and certain tax rules apply, the threshold is three years instead of five. Extensions or renewals count the same way. The United States is treated as having a substantial termination liability if either the U.S. agrees to pay at least 25% of the asset’s value (measured in present value under rules set by the Secretary of Defense), or if, under those Defense rules, a calculation adding the present value of the contract’s end-of-term termination liability and the present value of the contract payments for capital-hire (both excluding extension options) reaches the level the Secretary’s rules call substantial.

Full Legal Text

Title 10, §3674

Armed Forces — Source: USLM XML via OLRC

(a)(1)(A)In this chapter, the term “long-term lease or charter” (except as provided in paragraph (2)) means a lease, charter, service contract, or conditional sale agreement—
(i)the term of which is for a period of five years or longer or more than one-half the useful life of the vessel, aircraft, or combat vehicle; or
(ii)the initial term of which is for a period of less than five years but which contains an option to renew or extend the agreement for a period which, when added to the initial term (or any previous renewal or extension), is five years or longer.
(B)Such term includes the extension or renewal of a lease or charter agreement if the term of the extension or renewal thereof is for a period of five years or longer or if the term of the lease or charter agreement being extended or renewed was for a period of five years or longer.
(2)(A)In the case of an agreement under which the lessor first places the property in service under the agreement or the property has been in service for less than one year and there is allowable to the lessor or charterer an investment tax credit or depreciation for the property leased, chartered, or otherwise provided under the agreement under section 168 of the Internal Revenue Code of 1986 (unless the lessor or charterer has elected depreciation on a straightline method for such property), the term “long-term lease or charter” means a lease, charter, service contract, or conditional sale agreement—
(i)the term of which is for a period of three years or longer; or
(ii)the initial term of which is for a period of less than three years but which contains an option to renew or extend the agreement for a period which, when added to the initial term (or any previous renewal or extension), is three years or longer.
(B)Such term includes the extension or renewal of a lease or charter agreement if the term of the extension or renewal thereof is for a period of three years or longer or if the term of the lease or charter agreement being extended or renewed was for a period of three years or longer.
(b)For the purposes of this chapter, the United States shall be considered to have a substantial termination liability under a contract—
(1)if there is an agreement by the United States under the contract to pay an amount not less than the amount equal to 25 percent of the value of the vessel, aircraft, or combat vehicle under lease or charter, calculated on the basis of the present value of the termination liability of the United States under such charter or lease (as determined under regulations prescribed by the Secretary of Defense); or
(2)if (as determined under regulations prescribed by the Secretary of Defense) the sum of—
(A)the present value of the amount of the termination liability of the United States under the contract as of the end of the term of the contract (exclusive of any option to extend the contract); and
(B)the present value of the total of the payments to be made by the United States under the contract (excluding any option to extend the contract) attributable to capital-hire,

Legislative History

Notes & Related Subsidiaries

Editorial Notes

References in Text

section 168 of the Internal Revenue Code of 1986, referred to in subsec. (a)(2)(A), is classified to section 168 of Title 26, Internal Revenue Code. Codification The text of subsec. (d) of section 2401 of this title, which was transferred to this section and amended by Pub. L. 116–283, § 1825(f), was based on Pub. L. 98–94, title XII, § 1202(a)(1), Sept. 24, 1983, 97 Stat. 679; Pub. L. 100–26, § 7(h)(1), Apr. 21, 1987, 101 Stat. 282; Pub. L. 109–163, div. A, title VIII, § 815(a)(1), Jan. 6, 2006, 119 Stat. 3381.

Amendments

2021—Pub. L. 116–283, § 1825(f)(1), transferred subsec. (d) of section 2401 of this title to this section, struck out subsec. (d) designation at beginning, and redesignated pars. (1) and (2) of such former subsec. (d) as subsecs. (a) and (b), respectively. Subsec. (a). Pub. L. 116–283, § 1825(f)(2)(A), (C), (D), (E), after redesignation of section 2401(d)(1) of this title as subsec. (a) of this section, inserted subsec. heading, redesignated subpar. (A)(i) and (ii) and its concluding provisions as par. (1)(A)(i) and (ii) and (B), respectively, redesignated subpar. (B)(i) and (ii) and its concluding provisions as par. (2)(A)(i) and (ii) and (B), respectively, and inserted par. headings. Subsec. (a)(1)(A). Pub. L. 116–283, § 1825(f)(2)(A), (B), substituted “In this chapter” for “In this section” and “paragraph (2)” for “subparagraph (B)” in introductory provisions. Subsec. (b). Pub. L. 116–283, § 1825(f)(3), after redesignation of section 2401(d)(2) of this title as subsec. (b) of this section, inserted heading, substituted “this chapter” for “this section” in introductory provisions, and redesignated subpar. (A) as par. (1) and subpar. (B) and its cls. (i) and (ii) as par. (2) and subpars. (A) and (B), respectively.

Statutory Notes and Related Subsidiaries

Effective Date

Section and amendment by Pub. L. 116–283 effective Jan. 1, 2022, with additional provisions for delayed implementation and applicability of existing law, see section 1801(d) of Pub. L. 116–283, set out as an

Effective Date

of 2021 Amendment note preceding section 3001 of this title.

Reference

Citations & Metadata

Citation

10 U.S.C. § 3674

Title 10 — Armed Forces

Last Updated

Apr 6, 2026

Release point: 119-73