The Dos and Don’ts of Arranging a New Lease Agreement: The Dos
We already taken a look at what not to do when organising a new lease on equipment for your business; now it’s time to have a look at what you should do to ensure you negotiate a leasing deal that contains a competitive lease rate as well as clauses that suit your business requirements.
Leases are long-term agreements and much of the success of the lease relies on the initial stages of negotiation during the lease inception. Therefore, it is important that procurement professionals are prepared and aware of what it is they need to get the best leasing deal available.
A lease is a long term agreement and the success and costs savings available rely heavily on the initial new lease arrangement. The documentation arranged at the lease inception will govern the requirements and responsibilities of the end of lease process. A lot can happen within the time in-between the start of a lease and its termination and although it is impossible to always predict what will unfold, it is important to think about how your lease documents cover you for numerous scenarios. Planning ahead will place you in a better position to get the decisions that suit your business as markets and requirements change.
Perhaps the technology you’re leasing requires regular updates and would therefore like the option to terminate the lease early or to upgrade the assets throughout the lease period. Unless you have discussed these attributes as part of your negotiation, you are not guaranteed these options. You cannot predict the future, but by considering what options you would like to have, you’ll be far more prepared if circumstances change.
Consult the end users
In most cases, the people arranging the leases are not the people who will be using the assets on a day to day basis. These are the people who will have most interaction with the assets so it is important to consult them to find out what it is they actually need. By gaining a realistic idea of how the lease will be used, you will have a better idea of what elements to cover in the lease schedule.
Similarly, many lease schedules contain regulations and expectations in how the asset will need to be returned. As those who use that assets are rarely the same people who arranged the lease, these specifics are not always be communicated across. By working with the operational users to arrange a suitable deal, there is less chance that someone will unknowingly breach contractual terms, reducing unnecessary hassle and expenditure on resolving them.
Consider return conditions
The end of lease process can be the make or break of a competitive lease. If, when you come to the end of the lease term, you decide to terminate the agreement and return the asset, you will need to make sure that you return the equipment to the standard stated in your lease schedule. Unless you negotiate reasonable and suitable terms, you are vulnerable to an opportunistic lessor charging you
Many businesses focus on the most catastrophic scenarios that would breach the return conditions such as broken parts, burnt out motherboards or written off vehicles. However, it is the less obvious areas of asset quality that often cause the most hassle and can affect the expenditure. Some lease schedules may require a set of desktops to be returned with original packaging, including instructional manuals and polystyrene. Understandably, most users would have disposed of the packaging as soon as they opened the boxes, but if this is included in the contract, the lessor has every right to charge a penalty fee. These can add up and as the end of a lease is the last profit opportunity for a lessor, often these rules are very strict and difficult to challenge.
One of the most frustrating and common problems that can disrupt the perfect lease agreement is when a lease schedule includes ambiguous wording. There is no room for assumptions or benefit of the doubt statements within a binding contract as this leaves you vulnerable to the additional costs and hassle involved with resolving challenges between you and the lessor. It may seem evident to you what “suitable time-frame” or “acceptable condition” means, but if your lessor envisions something different by these terms, this could spark a tedious, complex and expensive to justify your objection. If you come across wording within the master lease or lease schedule that is not 100% crystal clear in its description, be sure to bring it up with your lessor in the negotiation stage of the lease inception.
Some aspects may seem petty or too obvious to challenge, but it is much better to take the time to ensure the wording spells out exactly what you need it to than to sign an agreement that ends up increasing your outgoing expenditure in the long run because of unclear phrasing.
Consider alternative options
Familiarity can be hugely expensive in business. As creatures of habit, many business operations rely on the same deals with the same funder and have done for some time. Many companies have become complacent with the mantra, “if it ain’t broke, don’t fix it”, but how do you know if it’s broken or not until you compare the alternatives?
As the leasing industry has grown, it has also evolved and there are numerous variations and leasing deals now available from a broad scope of different suppliers. Be sure to consider these alternatives as you may discover you could be saving a great deal of money by switching supplier or find a more suitable lease option that matches your internal plans and requirements. Even if you discover that you had the best deal to begin with, you can rest assured with the knowledge that you have agreed the most optimal lease around.
By keeping these dos and don’ts in mind when arrange your leases, you’ll be in a much better position to procure the equipment you need at a competitive rate. With budget restraints and the volatile state of the global economy, it is important that your leases provide you with more than a competitive lease rate.
The best way to ensure you harness the true value of your lease agreements is through trusted leasing experts. You may be lucky enough to have leasing specialists already as part of your finance or procurement teams. As leasing is a niche are of knowledge within the corporate world, there are always opportunities to save money on leasing and to secure a better deal through focused lease management.
With nearly 2 centuries worth of experience within various roles of the leasing industry, Innervision’s leasing experts are well places to aid companies in improving their leasing deals. We already provide unbiased guidance and negotiate new leases on behalf of our prolific clients and have helped provide numerous savings opportunities, which you can also benefit from.
For more information on arranging new lease agreements and how Innervision’s leasing expertise can help your business achieve cost savings through leasing, you talk to one of our experienced leasing experts on 020 7283 9422
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