Five Lease Gotchas that Will Cost You
All leases can be negotiated, but most companies don’t bother. Here are a few tips that could help you save big money on your next lease.September 2011 By Mary A. Redmond
EIGHTY PERCENT of all companies lease equipment—everything from phones, computers and servers, to presses, copiers and mailing equipment.
Leasing can bring many benefits, including:
- Conserving cash flow. Instead of paying large up-front deposits, lessors usually require only one or two months' rent in advance.
- An additional source of capital. Wise companies develop multiple sources of financing.
- Avoiding obsolescence concerns.
- Spreading expenses over the same period of time as the depreciable asset life.
Keep in mind that all leases are negotiable—but only if you ask. The problem is that most companies do not choose to negotiate their leases. They assume that all leases are the same, boilerplate language. So what possible benefit could be achieved by negotiating the terms? The company with the lowest payment is the best choice, isn't it?
Simply stated: NO! Savvy lease negotiators know that lessors will negotiate financial terms and conditions, end-of-lease terms, late charges, prepayment definitions and more. Leasing has a language all of its own. We call it "Lease Speak." It is possible to decode the language, negotiate your way through the murky water and save money for your company.
There is no one-size-fits-all lease. It must be tailored (negotiated) to fit your operation. If your organization does not frequently review and negotiate significant portions of every equipment lease, consider consulting a lease review specialist to keep current on the most common lease "Gotchas."
Five Areas to Negotiate in Every Lease
1. End-of-lease Options: At the end of the lease, the lessee should have three options: purchase, renew or return. Surprises occur when the definitions and conditions pertaining to the end options are uncovered.
TIP: Understand end-of-lease options and definitions of any terms used throughout the lease.
REAL LIFE: These terms and dates were found in a recent lease: Acceptance Date, Installation Date, Commencement Date, First Day of Initial Term, Last Day of Initial Term, Scheduled Termination Date, and Daily Rental. All of these terms were critical to a full understanding of the lease and none of them meant the same date during the life of the lease.
Define each date and how much additional rent is added when the Installation Date is the day the equipment arrives in your building and not the day the equipment is finally installed and producing an acceptable product. The time between these dates can add months and thousands of dollars to your total lease costs.