The world of finance has become an extremely complicated affair. In the “Good Old Days” one worked hard, earned money and put it in the bank, for a reasonable return. If one wanted to purchase an asset in most cases you saved up until you had sufficient funds and then bought it. If you needed a loan this was normally negotiated with the bank. It was a simple affair, a fixed loan, repayable at fixed rates for a fixed period.
Today there are a plethora of financial alternatives, instruments, options, derivatives, lease and buy back, the list goes on. The forerunner to today’s financial lease was Hire Purchase. Much like the bank loan the finance company lent you money against the asset purchased as security. The lease however is no such animal. To the unwary it is a dark hole that once entered is very difficult to get out of. I would urge extreme caution to anyone contemplating leasing.
You need to be aware that the contract you sign has been drawn up by the very best of legal minds, that it gives you virtually no rights at all, and that the deck is very heavily stacked in the favour of the finance company. Furthermore, the finance company essentially purchases the assets from the vendor, and then leases them to you. In the event of any defect in the equipment the finance company almost certainly excludes themselves from any discussion or liability, and you are left dealing with a disinterested vendor who has already been paid in full for the equipment.
My best advice to you is simply “Don’t do it.” If you must then “caveat subscriptor” let he who signs beware. Read the lease very carefully. I strongly recommend that you invest in some legal advice. It could save you thousands later. Remember that the end of the lease is as important as the beginning. Make sure that you are very clear as to what you can and cannot do and what it will cost you and when.
In particular here’s a checklist you should go through step by step.
1. Firstly ensure that you are dealing with a reputable and accredited supplier of the equipment and that they will honour all warranties and undertakings.
2. Ensure that you are dealing with a reputable finance company. Check the name of the company and its parent, and ensure that they belong to the Finance and Leasing Authority. (UK). Its members have to ensure that their contracts are clear and unambiguous.
3. Make sure that the equipment is new.
4. Ensure that the contract you’re signing complies with all written and verbal undertakings arrived at in discussions so far, as the contract will override all previous agreements.
5. Read the contract carefully before signing, especially the small print. Pay particular attention to the rental, the contract period and what happens to the asset on termination.
6. Make sure you understand all the terms in the contract. Don’t be afraid to seek independent advice. Never sign a contract that is incomplete in any way.
7. Don’t be pushed into or hurried into signing.
8. Ensure that the length of the contract is not longer than the expected useful life of the asset, otherwise you will end up having to replace the equipment with a new lease, whilst still paying off the old one.
9. Check if the contract includes any supply of services. e.g. maintence agreements on the equipment.
10. Check the termination clauses very carefully. Be very aware of unfamiliar words as they might have significant legal meaning that you are unaware of. You may be required to return the equipment to the supplier anywhere within a specified geographical region, which could involve significant additional expense. The equipment might have to be returned in a stipulated state, or within a specified time frame.
The Americans have a lease term called the “hell or high water” clause. The clue is in the name. Any contract containing a clause starting with “hell” warrants very careful thought.
From my personal experience, steer clear of leasing if you can.
If you have to, proceed with extreme caution.
You’re swimming with the sharks.
Til next time
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