1. A sale has genuinely occurred, where all major risks and rewards were transferred to the buyer;
2. The buyer (lessor) cannot transfer the leased asset back to the seller (lessee);
3. The lessee has no bargain repurchase option and the lessor assumes the exposure to risk that the value of the leased asset will fall
4. The lessee has no option to prolong the lease agreement at conditions significantly more favourable than the market conditions;
5. The fair value of assets sold and leased is substantially higher than the present value of the minimum lease payments;
6. The lessor is more than simply a lender - the lessor’s income and exposure to gain and loss is related to property market conditions (for example, rental prices and property values), not just interest rates.

         The transaction should be accounted for as a finance lease if any of the conditions above is not fulfilled.

The commerciality of sale and leaseback transactions between related parties in particular should be considered to determine the appropriate lease classification [IAS17.10,21(R.05)]