What is a nonsubstitution clause and can it limit the risk of nonappropriation?
A nonsubstitution clause is a provision in a 103 lease that prevents the government from nonappropriating and then acquiring equipment to perform the same function as the previously leased equipment. Although nonsubstitution clauses still appear in 103 leases, the majority view (with which the author agrees) seems to be that having a nonsubstitution clause in a 103 lease actually damages the lessors interest. Here is the rationale: If the nonsubstitution 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 nonappropriate, nevertheless imposed coercive sanctions on the government in the event that the government exercised such right. The right to nonappropriate becomes illusory. The nonsubstitution clause becomes the basis for an argument that the 103 lease creates debt. The government still has to perform the essential government func
