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Would you like to have fewer hassles with your
next business lease while significantly trimming your costs? If so, you
can.
In fact, getting better flexibility on your lease can be even better
than getting the lowest lease rate. You can get superior lease
flexibility while at the same time slash your overall leasing expense.
Lease Amount
First, make sure you get a lease that includes most of the equipment you
need to acquire. You want to avoid having to negotiate another financing
arrangement on the excluded equipment. Check to make sure you can easily
add more equipment to the lease as your business needs change. The
better lease agreements provide for multiple lease schedules under a
master lease or the ability to amend the lease to make additions.
Payment Schedule
Get a lease payment schedule that matches your company's cash flow
cycle. This will be very beneficial. Many lessors will accommodate
reasonable requests, depending on their own administrative constraints
and your company's credit standing. Monthly and quarterly payment
schedules are typical. Less typical are schedules that vary payments to
accommodate seasonal cash flow, but many times you can negotiate a
special arrangement.
Interim Rent
Interim rent, or the rent you pay for the daily use of equipment from
the time of acceptance until the start date of the lease, can be
limited. Interim rent can increase the cost of a lease by arbitrarily
extending the term of the lease, even if only by days. To reduce the
interim period, the best approach is to schedule equipment delivery and
acceptance toward the end of the month. You can also negotiate a
truncated period at the end of the lease so that the interim period and
the truncated period together total one monthly payment.
Upgrades
A flexible lease agreement anticipates the need for equipment upgrades.
Usually, at the time of an upgrade, the present value of rentals related
to the upgrade can be combined with the present value of the remaining
equipment rentals to create a revised schedule.
Early Termination
Most leases do not have provisions for early termination. One way to
achieve more flexibility in this area is to have a feature referring to
it built into the lease. For most leasing arrangements, an amount
consisting of the present value of the remaining rentals plus a
termination charge no greater than 3 to 5 percent should compensate the
lessor for an early termination.
End-of-Lease Options
Does the lease you are being offered have flexible end-of-lease options?
Several options that will make your lease user friendly include the
right to return the equipment to the lessor without undue penalty, the
right to purchase the equipment at a fair or discounted price, and the
right to continue leasing the equipment at a fair or reduced rent. At
the end of a lease, having upper limits in fair market value for
purchase or rental options can greatly reduce potential costs. Beware,
however, as a lessor may insist on a fair market value floor when
agreeing to upper limits.
Equipment Relocation
If becomes necessary to relocate the equipment to another site during
the lease term, make sure the lease provides for relocation without
unreasonable penalties or charges. Relocation may be subject to
notifying the lessor. Keep in mind that equipment relocation may create
extra expenses for the lessor, particularly if the equipment will be
moved to another state or to different locations.
End-of-Lease Notice Period
Is the end-of-lease notice period sufficiently long enough for you to
indicate whether you want to renew the lease, buy the equipment, or
return it? The notice period is generally from one to six months, with
three months being typical. If you violate the notice period, the lease
is automatically renewed, usually for one to six months. You should seek
short notice and automatic renewal periods to avoid unintended
additional lease charges. If the lessor is not willing to negotiate, you
can manage the situation by making sure that the notice requirement is
fulfilled within the time allowed.
Grace Periods
Look for a flexible grace period regarding lease defaults. Often a lease
doesn’t provide for a grace period for rental payments. If you ask for a
five- to seven-year grace period, you can have greater flexibility.
Similarly, the nonpayment grace period of a standard lease will usually
be less than ten days. Ask for a fifteen- to twenty-day grace period to
increase flexibility.
Getting the lease flexibility that your firm needs may require skillful
negotiating, but it is worth it. Be prepared to deal with some
give-and-take as you look for ways to save money and avoid future
problems. You can sign whatever lease that is put in front of you, or
you can follow these easy guidelines and be rewarded with a great deal
on a lease.
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