What is a non-appropriation or funding out clause?

The non-appropriation clause enables the lessee to recognize the lease obligation as a current expense rather than debt. A non-appropriation clause enables the lessee to terminate the lease agreement at the end of the current appropriation period without further obligation or penalty. This can be done only in cases where the lessee is unable to obtain funding for future payment obligations on the lease. Typically, the clause will contain a 'best efforts' requirement whereby the lessee must use its best efforts to obtain the necessary appropriation for the lease payments.

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