The “Gotchas” in your equipment leases will get you every time. The “Gotchas” in your equipment leases will get you every time.

By Mary A. Redmond

Nine Leasing Gotchas That Can Get You

Before donning the lease reviewer’s hat, here are some areas to consider:

1) Negotiate: Begin with the assumption that everything is negotiable.

2) Equipment Price: Negotiate the equipment price separately from the lease payments. Focus on lowering the purchase price. If the purchase price is lower, the lowest lease payment follows.

3) End-of-Lease Options: Be certain you receive at least three flexible end-of-lease options:

A. Return the equipment when it no longer serves the organization’s needs—without fees, fines or penalties.

B. Renew the lease for an extended period. When the decision to buy or return the equipment is not final, it is helpful to have the option to extend the lease for a few additional months. Avoid one-year forced renewals. The best renewal option is month-to-month with reduced lease payments—after all, the equipment is now worth less.

C. Purchase options: Define the process for determining the fair market value purchase price. Negotiate the selection of the appraiser as well.

4) Avoid the Standard Lease: The “Standard Leasing Agreement” is simply the document’s title. The term “standard” never means “one size fits all.” With negotiations, it is possible to cut 5 to 15 percent off the total lease cost.

5) Reduce Upfront Costs: Negotiate to reduce documentation fees, security deposits, personal guarantee requirements and multiple advance payments.

6) Independent Lessors: The equipment vendors provide lease quotes. The vendor’s leasing company may not be the best lease source. Some equipment vendors make a bigger commission from “selling” the lease program than they do from the equipment sale.

7) Watch for Hidden Penalties: Penalties as high as 60 percent can be buried in the maze of legal language. Extra costs hide under clauses such as return provisions, restocking fees, maintenance requirements, equipment upgrades, advance notifications, acceptance deadlines, cancellation fees and automatic extensions.

8) Beware of the Perpetual Lease: Leasing companies seldom notify customers that the end of the lease is approaching. It’s a real Gotcha when managers find they are in the fifth year of a four-year lease. End-of-lease notification language is often obscure and unclear. At lease commencement, verify when you must give the leasing company written notice regarding your end-of-lease plans.

9) Notifications: Send all notices by certified mail. Never fax or e-mail your end-of-lease notice. Keep good records and receipts of all correspondence.

LEASING IS one of many financing tools available to help in-plants fill their equipment needs. Leasing allows fixed rate financing and usually is accompanied with little or low up-front costs.

Most surprises come at the end of the lease; however, some can slip in at lease commencement and show up with the first month’s invoice. By then the contracts are signed and it is too late to negotiate changes. Every lease contains complex, confusing documentation, obscure terminology and a language that can bewilder the most astute financial managers.

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