Companies occasionally require the use of major equipment, but these purchases are not always prudent from a financial standpoint. Instead, companies rent equipment through equipment rental agreements. These rental agreements may seem like standard contracts not worth looking at twice, but unless you get them looked over by an experience contract lawyer, you could find yourself taking on a higher expense or more liabilities than expected. Priori can connect you with a top contracts lawyer to review and negotiate your equipment rental agreement on-demand.
About Equipment Rental Agreements
Equipment rental agreements, also known as equipment lease agreements or simply equipment leases, allow companies to rent large pieces of equipment for a certain time period. Generally, these lease agreements are undertaken with the hope of minimizing the upfront costs for a business or because the equipment is only needed for a limited period of time. The person renting the equipment out (the lessor) and the person receiving the rented equipment (the lessee) must agree upon all the terms and conditions for the transaction and rental period in this contract.
Key Considerations in Equipment Leases
Equipment rental agreements can be pretty flexible to fit the lessor and lessee’s needs, but certain provisions must be negotiated in addition to the boilerplates. The following are key considerations you must make when dealing with an equipment lease agreement:
- Equipment. The contract must clearly define what equipment is being leased. This may seem obvious, but non-specific equipment descriptions are the source of a large number of equipment rental agreement disputes. Complex machines have many vital parts and additional attachments, and if any can be removed, you should detail which ones are included or risk an expensive surprise.
- Term. Few equipment leases are done on a month-to-month basis without some required term.
- Rent. Not only is it important to establish what the rent will be, but also how long it lasts for and what the payment installments are.
- Termination: Almost all rental agreements have some auto-renewal provision, which means knowing how the lease can be terminated and when is vital.
- Usage Limitations. Since “normal wear and tear” is accepted as good faith use of rented equipment, it’s important for the lessee and lessor to agree upon any potential usage limits.
- Insurance. Who is responsible for what insurance on the machine should be agreed upon.
- Transportation and Installation. The contract should specify who will be responsible for transporting and properly installing the equipment.
- Maintenance. All maintenance requirements of the equipment should be specified, including who should carry them out and at whose cost.
- Warranties. While some assurances of safety and quality are required by law, any other warranties of the state and performance of equipment should be carefully considered.
Risk Issues in Equipment Lease Agreements
One common issue that plagues equipment lease agreements is risk and indemnification. When something goes wrong with the equipment, it’s vital to know who is responsible—as well as who must pay for any damages if the equipment malfunctions or causes an accident. Too often, “standard” equipment lease agreements contain unclear language in clauses that are meant to establish who bears responsibility for accidents and malfunctions.
Often lessors will require the lessee to indemnify and hold them harmless to some extent in case something goes wrong while operating the rented equipment, but these clauses vary from only indemnifying the lessor in cases where negligent use of the equipment caused the accident to total and complete indemnification, regardless of the cause of the malfunction. When you negotiate these contacts, indemnification clauses must be clear to all parties or both bear the risk of unexpected expenses, insufficient insurance and exponentially larger liabilities.
Equipment Lease Termination Letter
In order to terminate a equipment rental agreement, most require the lessee to issue an equipment lease termination letter. An equipment lease termination letter specifies the date and terms under which the rental will not be renewed. These notices are always time sensitive and generally must be sent in a certain manner, so you must be careful when drafting and issuing these documents to meet all requirements under the equipment rental agreement. Otherwise, you could end up leasing the equipment for another term.
Depending on your specific situation, the cost of drafting or reviewing an equipment rental agreement can vary. If you hire a lawyer through the Priori network, hourly rates for lawyers with this type of experience start around $175 per hour and can range upward to more than $350 per hour. In order to get a better sense of cost for your particular situation, put in a request to schedule a complimentary consultation and free price quote from one of our lawyers.
Why doesn’t my monthly rental fee last for a whole month?
Often lessees forget to check the definition of a “month” in their monthly equipment rental agreement. Equipment leases tend to limit the period to 30 days—or even 28 days. This means that you may be paying more often than you have expected.