Turoa Ltd leases a major piece of machinery from Ruapehu Ltd. The lease begins on 1 July 2019 for five years of the machinerys estimated useful life of eight years. The lease is renewable at the end of five years for a further two-year period at the usual commercial rates prevailing at the time of renewal. Turoa will not guarantee the residual value, which has a present value equal to approximately 25% of the fair value of the equipment on 1 July 2019. An insurance company, not related to either Turoa or the lessor, will guarantee repayment of the residual value to the lessor at the end of five years if the lease is not renewed. Ruapehu Ltd will arrange the insurance of the residual value and will pass on the premiums to Turoa Ltd as part of the lease rental.

Required: Determine how Ruapehu Ltd (lessor) would classify this lease in accordance with the requirements of IFRS 16 Leases.