Equipment leases require the customer to notify the leasing company when certain events occur during the life of the lease. Here are four:
- Equipment relocation
- Equipment damage
- Corporate ownership or structure change
- End of lease
Miss any notices and you’ll pay the piper. Take a peek at the first two.
Equipment relocation: You must notify the leasing company within a specific number of days if you are relocating equipment. The most common required notice is a 30-day written notice before moving equipment. That can be a move to a new building or across the hall.
TIP: Why does the leasing company care? They need to keep track of the equipment for proper invoicing of sales/use tax and property tax and to be able to find their equipment. Some leasing companies charge fees to cover the “cost” to redocument the new location. The fee is negotiable and sometimes may be eliminated completely.
REAL LIFE: One of my printing company clients in Annapolis, Maryland, moved a digital press to another part of its plant. The manufacturer quoted a $16,000 fee to execute the move. The owner negotiated the price by getting the leasing company and the manufacturer to allow the printer to use a less expensive relocation company. He saved over $14,000! He’s my negotiation hero!
Equipment damage: The customer is required to notify the leasing company in writing if the equipment is damaged or destroyed. Most leases require written notice within 10 to 30 days after the damage occurs.
TIP: The leasing company may ask the customer to pay off the remaining lease balance on the destroyed asset. The payoff will include the remaining payments, late fees, if applicable, plus the equipment’s fair market value. If you choose the payoff option, negotiate the amount because the leasing company is getting its money earlier than expected.
Another available option may be to replace the asset with an identical piece of equipment. The replacement must be free and clear of liens. If the replacement option is selected, payments continue as in the original lease.
Next week we’ll look at Notification Periods regarding corporate ownership and end of lease events.