Define the Equipment. What is being leased? It seems a simple question, but some machines can be equipped certain way to accomplish a specific objective. For example, a user can fit a screener with screens of a certain size to produce the desired product. Are the screens part of the leased equipment or does the lessor charge separately for the screens?
Define the Term. What is term of the lease in weeks or months? Generally, the lessor benefits by requiring a minimum term as opposed to renting the machine out on a week-to-week or month-to-month basis.
Define the Rent and Consider Sales/Use Taxes
Define the Rent. How much will the lessee pay to use the equipment? Do not confuse the amount of rent with the timing of the payment of the rent. If the lease term is three months and the rent for the term is $6,000.00, the parties must agree on how that $6,000.00 will be paid. They may agree to three monthly payments of $2,000.00 or they may agree to some other schedule, but the lease should be clear on this issue.
Consider Sales and Use Taxes. If the jurisdiction where the lessee will use the equipment imposes a sales or use tax, the lease should specify who will pay that tax (usually the lessee). If the lessee will pay the tax the lease should make clear that sales or use tax charges are in addition to the rent.
Be Clear on the Number of Hours Involved
Equipment wears as it is used. Even when the parties agree on the lease term the lessor will want some assurance that the lessee will not cause excessive wear to the equipment by operating it 24 hours a day. To address this concern many leases provide that operation of a machine for more than a specified number of hours in a week or month will result in additional rent charges for each hour the lessee uses the machine beyond the specified number. We have represented clients in lawsuits where people testified that it was "the custom in the industry" to allow so many hours per day or week before additional charges become applicable; don't rely that -- make sure the lease clearly addresses this issue.
Be Clear on Place of Installation and Transportation
Where will the lessee use the equipment? Who will set it up? If the lessor will install the equipment, is there an additional charge for that service? Another reason to specify the place where the lessee will use the equipment is that the lessor must know where and how the lessee used it in case the lessor later needs to take possession of it or file a mechanic's lien against the property that the equipment was used to perform work on.
Who will pay the cost of transporting the equipment? F.O.B. is an abbreviation for "free on board" or "freight on board." In the context of a lease, it generally specifies which party will be for transportation of the equipment. If the equipment is "FOB shipping point" the lessee pays the transportation costs and takes responsibility for the equipment when it leaves the lessor's premises.
Be Clear on Maintanence and Wear and Tear
The lease should specify who will be responsible for maintaining and repairing the equipment. If the lease requires the lessee to pay for replacement parts provided by the lessor it should specify whether the charge for the parts will be the lessor's cost or the lessor's retail price.
An equipment lease almost always requires the lessee to return the equipment in good condition, "ordinary wear and tear excepted." For this reason the lessor should have a procedure in place to document the condition of the equipment before it leaves and immediately upon its return. We recommend that equipment lessors use a checkout and check-in checklist for each rental to document the condition of the equipment. We also recommend that lessors immediately photograph any damage beyond ordinary wear and tear when the equipment is returned.
What warranties, if any, has the lessor made? If the lessor has made warranties the lease should describe that nature and extent of them. Certain warranties exist as a matter of law unless the lessor disclaims them; the lessor should make sure the lease disclaims such warranties unless the lessor intends to by bound by them.
Look for a Merger or Intergration Clause
A good lease will contain what lawyers call a "merger" or "integration" clause. This may seem like "legal mumbo jumbo," but it is crucial. The purpose of this clause is to prevent the parties from later claiming that the lease does not reflect their entire understanding or was changed by a subsequent oral agreement. For example, a merger clause can protect a lessor from a lessee's claim that the lessor represented that the equipment would perform to specific standard or accomplish a specific task.
How Will Disputes be Resolved?
A dispute may be resolved by non-binding mediation, binding arbitration, or through litigation. Be sure the lease specifies which method will be used. Who will serve as the mediator or arbitrator? Will the parties split the costs?
If there is litigation between the parties, what court will host that litigation? No party wants to be hauled into court in a distant county or state where it will be forced to hire local counsel. We encourage lessors to insist that their lease forms contain a clause mandating that the exclusive venue for any litigation will be in the county where the lessor has its principal place of business.
Consider Attorney's Fees and Costs
In most states a party to a lawsuit pays its own attorney's fees and costs -- even if it wins in court. However, the parties can alter that rule be including a clause in the lease providing that the prevailing party in any lawsuit will be entitled to collect its attorney's fees and costs from the other party.
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