Plant and equipment leases

What is an equipment lease agreement?

If you have spare plant and/or equipment you might consider renting or loaning it to another business. Doing so may generate extra revenue for you or you may be able to pass obligations for repair and maintenance to the business that rents it. There may be tax benefits that make it attractive to the leasee to pay rent rather than having owning the asset on the balance sheet.

An equipment lease agreement is a legally binding contract that sets out the terms under which equipment of any type is rented to another business, including the obligations of the owner and of the renter, including for payment and maintenance.

An equipment lease agreement may also be referred to as an equipment rental agreement, an equipment hire agreement or an equipment loan agreement.

Who should use an equipment rental agreement?

They could be used by the following:

• B2B vehicle, plant or equipment rental service providers
• construction companies or contractors with spare machinery
• specialist equipment rental companies hiring infrequently used tools to businesses
• vehicle fleet management businesses
• long-term business equipment rental companies (whether cameras to professional photographers, or laptops to professional consultants)
• a business leasing equipment to another business in the same group

With the exception of the audio-visual B2C agreement, these are business to business rental agreements. They do not comply with the Consumer Credit Act 1974 and so are not suitable for businesses who are in the business of leasing equipment to consumers.

What types of equipment might be leased under these contracts?

The legal framework of each of our equipment lease agreements is largely the same. What differs between them are practical provisions that vary depending on how easily (or not) the subject matter can be moved.

The subject matter could be:

• heavy machinery or plant, such as machines for manufacturing large parts
• heavy duty construction vehicles such as cranes, bulldozers and diggers
• cleaning tools such as industrial vacuum cleaners
• agricultural equipment such as harvesters
• office equipment and appliances for business use
• medical devices

What should you consider when leasing equipment?

Description of the rented equipment

Identifying the equipment is important, especially if there are several pieces that are similar. The lessor will want to make sure that the equipment is returned at the end of the rental period in an expected condition, and the lessee will want to make sure that they are not charged for damage that existed before the lease started.

You should record the make, model and any serial number, and any current identifying characteristics such as scratches on paintwork.

The lessor and lessee should also agree an estimate of current value, which could form the basis of calculation for damages.

Wear and tear

Wear shold be anticipated. What exactly is fair wear is subjective. As far as possible, you should agree in advance what condition the equipment should be returned in (for example, with new tyres or certain parts replaced) and what constitutes good repair.

You could also specify who is responsible for keeping equipment in good condition - it is possible that maintenance is carried out by the lessor or an appointed agent.

Rental period

There is no restriction on the lease term, that is the period of time that the equipment is rented. It may be a fixed term for a specific period, or a periodic term (for example, a month to month basis).

Timing and amount of rental payments

You have a great deal of flexibility with the amount of rent and the timing of payments. There could be a single payment in advance for a fixed term, or multiple payments in arrears each month if the equipment is rented on a periodic basis.

The lessor may impose interest and payment of late charges if a due date for payment is missed.

Payment details

Information about how the rental payment and any security deposit and service charges should be made could be included in the contract or given separately.

Restrictions on how the leased equipment may be used

While it might seem obvious how the equipment is to be used, the hirer (or one of their employees) may decide on a use of the equipment for a purpose not intended. It may be difficult to list all circumstances in which it shouldn't be used, so it may be better instead to list when it can be used and then note that any other purpose is not allowed.

Indemnities

The two parties can agree that expenses incurred by the owner arising from the hirer's breach of contract, misuse of the equipment, any accident or failure to pay taxes or fees can be recovered.

Insurance

Accidents do happen. The hirer may keep an insurance policy in place, but there may also be an obligation obligation to the extent permitted on the hirer to take out an insurance policy so that they can also be responsible for loss, theft or damage. The insurance coverage by the hirer could then be reduced.