This week’s blog continues with Part 3 of the required notices for your leases – the end of the lease.
At the end of an equipment lease you usually have three options:
- Purchase all equipment.
- Renew the lease on all equipment.
- Return all equipment.
The standard notification period is usually 60 days prior to the end of the original lease term. That means you must send a written notice to the leasing company to tell them what you would like to do with their equipment.
Some really tricky leasing companies make it almost impossible to figure out when the notice is due. The lease says the notice is due no less than 180 days and no more than 210 days before the end of the lease. STOP! Calculate this? You have only a 30-day window during a 5-year lease to remember to give the leasing company notice. How likely can you remember to do this?
If written notice is not provided within the required timeframe, the lease may automatically renew for a period between 12 additional payments and as long as another full lease term. Miss the notice on a 5-year lease and face another 5-year lease. Ugh!
TIP: Become familiar with all notification requirements. The definitions are specific to each lease contract and differ from leasing company to leasing company. Never assume all leasing companies use the 60-day notice.
TIP: Establish a calendar to track end of lease notification dates. The leasing company will not send a reminder warning that the end of the lease is approaching. There are web-based end-of-lease notification services to help you remember when notices are due. Some send the leasing company the notices for you.
TIP: Use certified mail for every leasing company required notice. Faxes and email are never sufficient. No proof there. Keep all delivery receipts. A paper trail is essential.
REAL LIFE: A large Midwest based law firm continuously missed its technology equipment end-of-lease notices. The leasing company offered to renew the lease for 12-18 additional months. We audited $2 million of their $10 million in computer leases. We uncovered that they spent an added $330,000 in lease extensions. How would you explain that cost overrun to the managing partner? Duck and cover.
SOLUTION: Rewrite the notification requirements. Our client can give notice anytime before the last 30 days of the lease. With their tech upgrade plan, they may give notice on day one of the lease.