What is a non-substitution clause and can it limit the risk of non-appropriation?
A non-substitution clause is a provision in a 103 lease that prevents the government from non-appropriating and then acquiring equipment to perform the same function as the previously leased equipment. Although non-substitution clauses still appear in 103 leases, the majority view (with which the author agrees) seems to be that having a non-substitution clause in a 103 lease actually damages the lessors interest. Here is the rationale: If the non-substitution clause prohibits the government from performing an essential government function, such a clause may be used to show that the lessor, while purporting to recognize the unrestricted right of the government to non-appropriate, nevertheless imposed coercive sanctions on the government in the event that the government exercised such right. The right to non-appropriate becomes illusory. The non-substitution clause becomes the basis for an argument that the 103 lease creates debt. The government still has to perform the essential governm
