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When negotiating an equipment leasing contract, a
small business or corporation should review all the legal terms used in
order to avoid the top mistakes most commonly made when leasing
equipment.
The following guidelines can be applied to leasing equipment in many
different industries, whether education, computer, engineering, or
construction.
Mistakes to Avoid in Contracts
A primary mistake when negotiating a lease is to go with a very short
contract. A short contract may not cover issues such as problems with
software in computer leases or litigation issues dealing with employee
piracy. Other issues unlikely to be addressed in a short contract
include software transaction agreements, technical and troubleshooting
support, and settlement if the provider goes out of business.
The expectations and obligations of all parties should be clearly
outlined in the contract. A contract should possess clarity and
completeness. The shorter the contract, the more likely it is that the
company leasing the equipment will be taking legal and business risks.
Performance Details
The contract should describe the performance of the equipment in detail.
Whether you are leasing a computer system, a server, or a backhoe, you
need to know that it is capable of handling the load you will be
delivering to it. You don’t want to lease equipment that won’t meet your
needs. Performance details should be clearly stated in the contract.
Before closing on any contract, the lessor should clearly understand
your needs and what you are looking for and provide the performance
details of the equipment he is leasing to meet your needs.
Structure Defects
Structuring agreements clearly is key to understanding where
responsibility lies in each area. An equipment leasing agreement should
stipulate the structure of the deal. For example, who is the primary
contact for system defects? It is unlikely to be the salesman. Who
handles support issues? The manager in charge of the account may be the
primary contact, but he or she may only deal with negotiations and refer
customer support issues elsewhere. Structure and allocation of
responsibility should be clearly spelled out and documented in the
contract.
Equipment Hardware Leasing Specialties
When leasing computer equipment, software leases are often required as
well. The duration of the software leases should be coordinated with the
duration of the equipment lease. It's important to ensure that all
leased equipment is compatible with equipment from different vendors.
It's also important to ensure that a project's start and completion
dates are congruent with the equipment lease dates. It may be difficult
to assess balancing the needs of the developers with equipment support,
but it's important that the leases support the needs of the company,
whether small or large.
Legal Consulting
Too often, lawyers are not consulted during the initial drafting of
equipment leasing contracts. This is a mistake, especially for small
businesses without an in-house legal team. Lawyers can help make the
transaction go smoothly and help the company avoid loopholes that could
cause legal problems for either or both parties later on. However, if
you use a lawyer, find one experienced in lease transactions.
The Results versus the Resources
Be sure to clearly define the reason for leasing the equipment. Most
leasing companies see themselves as a provider of resources. Companies,
on the other hand, tend to think in terms of the results they can
achieve by using the equipment they want to lease. They are not thinking
in terms of resources. Companies have their eye on the end product. They
should focus on being clear about the results they want so that they
will get the right equipment.
Communication
Clear communication is essential from the start. When negotiating an
equipment lease, be sure that all your questions have been answered
before signing the agreement. If a leasing company doesn’t return your
calls or gives you inaccurate information, don’t lease equipment from
them. Companies make a mistake in leasing equipment from a vendor they
have trouble getting in touch with. Such issues can hint at service
problems in the future.
Realistic Expectations
Companies must have realistic expectations when negotiating contracts
with vendors. Vendors usually do their best to meet customer needs and
requests, but the company must keep industry standards and limitations
in mind. Even though technology continues to grow, not every goal has
yet been achieved.
Short Term Versus Long Term
The last and biggest mistake made in equipment leasing is in thinking
that a contract must be closed immediately in order to meet a deadline
set for the next few weeks. Avoiding looking at the long-term effects of
an equipment lease may leave the company with equipment they don’t need
or bad contract terms. If the company’s short-term goal is to launch a
new product or set the foundation of a new project, but the equipment
won’t help achieve the long-term goal, the issue should be addressed.
Equipment leasing provides multiple benefits to both large and small
businesses. While it's important to recognize the benefits, it’s also
important to avoid the pitfalls and mistakes that can occur when
negotiating an equipment lease.
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