An equipment lease agreement enables businesses and individuals to rent machinery, tools, electronics, or equipment in exchange for periodic payments made to the owner. Rentals can be leased on a daily, weekly, monthly, and even yearly basis depending on the industry and type of equipment.
An equipment lease is a contract that outlines how an owner of equipment will rent it out to another person (the “renter” or “lessee”). In exchange for having the right to use the equipment, the renter makes consistent payments to the rental company. Renting equipment is popular in many industries as buying the equipment outright is very costly, especially if one only needs the equipment for a short period of time. In construction, a common rule is if equipment will be used less than 60-70% of the time, it makes more financial sense to rent instead of buy. While each industry has its own standards and “rules of thumb,” equipment rental serves an important role in allowing companies to be flexible and unburdened by excessive loans.
“On average, close to 8 out of every 10 companies (79%) finance equipment, including loans, leases, and lines of credit.2“
- Construction – excavators, backhoes, loaders, dump trucks, tractors, bulldozers, etc.
- Manufacturing – CNC machines, plasma cutters, machining tools, cranes, etc.
- IT – servers, laptops/desktops, projectors, monitors, office equipment, etc.
- Healthcare – power wheelchairs, ramps, stairlifts, MRI scanners, x-rays, etc.
- Restaurants – ovens, refrigerators, broilers, food processors, espresso machines, etc.
- Municipal/towns – plow trucks, street sweepers, garbage trucks, generators, etc.
- Step 1 – Study the Market
- Step 2 – Purchase Equipment
- Step 3 – Market the Rentals
- Step 4 – Create & Sign a Rental Agreement
- Step 5 – Take Care of the Equipment
Anyone that wishes to rent out equipment should ensure there will be room in the market they are looking to enter. If they are entering a heavily saturated market, they need to offer their rentals with a different approach, such as offering a low-cost alternative, high-end equipment, long-term rentals, and so on. Any gaps in the market can be effectively marketed to capture customers that other companies in the area aren’t reaching.
Studying the market also helps the owner determine the rates they should be charging, who the typical customer is, the seasonality of rentals, and so on. All data collected should be documented to provide the owner with an easy-to-read overview of the market in their area. Once they are confident in their plan, they can begin acquiring equipment to rent.
Equipment can be purchased new or used. Depending on the type of equipment, the owner may need to finance it or start out with a few major products. Starting slow is recommended to avoid getting “underwater” with loans. The purchased equipment should be items of good quality and in high demand. Once the rental business has been established, owners commonly obtain more rarely used equipment to complete their offering.
To attract potential customers, the owner can use a number of different marketing tactics.
- Social media – With over 2.6 billion monthly active users, Facebook is a great website for creating a business page.
- Network – Looking into the local chamber of commerce is a great way to learn about new and established businesses that may need rentals. Oftentimes newer businesses decide to rent certain types of equipment so they can focus start-up money elsewhere.
- List it online – Equipment rental platforms such as EquipmentShare offer an easy means of reaching a wide range of potential customers.
An equipment lease agreement keeps all of the parties on the same page in regard to the length of the lease, what the renter has to pay to the owner for use of the equipment, what the renter can use the equipment for, and more. The form serves as proof of the lease, giving the owner the legal right to collect money for unpaid rent or damages to the equipment. Once the form is drafted it can be reused for each customer, with only minimal edits needed. Once completed, the parties will need to sign the form and distribute a copy to each party.
In between renters, the equipment should be serviced with clear-cut maintenance schedules. This is especially important for high-value rentals. The most cost-effective way is to replace the part even if it doesn’t show obvious signs of wear. This helps to avoid making repairs in the middle of a leasing period. Newer rental companies rarely have in-house maintenance teams, as it is more cost effective to have a trusted repair shop conduct work as needed. Larger rental companies, on the other hand, often complete repairs on their own due to the frequency of use and damage.
Step 1 – Party Names
Start by entering the date on which the parties are officially entering into the equipment lease. Write the full name of the person or company leasing the equipment, followed by the name of the lessee, which is the person/company renting the equipment.
Step 2 – Equipment
List the type of equipment that the lessee is renting. This can be one (1) or more items. Try and describe the equipment in as much detail as possible, including any serial numbers, VINs, or other identifying features.
Step 3 – Lease Term
This section specifies how long the lessee has to use the equipment. This is also how long the lessee will be required to make payments on the equipment. Both dates should be entered in full (e.g., “01/01/2030”).
Step 4 – Lease Payments
On the first line enter the amount ($) of rent the lessee will be required to pay each month. Then, enter the full address to which the lessee should deliver/send payments.
Step 5 – Late Charges
Specify the number of days (after the due date) the lessee has to make the rent until a late fee will be charged. Then, specify the dollar amount ($) of the late fee.
Step 6 – Security Deposit
A security deposit is a payment made upfront by the lessee that is used to cover any damage caused to the rental. If the lessee returns the equipment in the condition is was initially received (not including normal wear), the lessor is required to reimburse the security deposit. Note: If the lessee causes more damage to the equipment than what the deposit covers, the lessee can be held liable to pay for all additional damage expenses.
Step 7 – Delivery
If the lessor will be delivering and picking up the equipment rental, check the “SHALL NOT” box. If the responsibility will be on the lessee for picking up and returning the rental, check the “SHALL” box.
Step 8 – Permitted Use
The lessor should state the general permitted use of the equipment on the lines provided. It is recommended that they include additional attachments on the proper care/use of the rental. This is especially important for more expensive pieces of machinery.
Step 9 – State Law
Write the name of the state in which the equipment was rented.
Step 10 – Notice
Write the mailing address of both parties. This is used if either party needs to send a notice to the other (such as terminating the agreement).
Step 11 – Additional Terms
If there are any additional terms and conditions to the agreement, they should be written on the lines provided. Otherwise, write “none” in the space.
Step 12 – Signatures
Write the date on which the parties will be signing the agreement. This is the date the contract will officially go into effect. Then, both parties will need to provide the following information:
- Dates they signed
- Printed names (in full)
- Company positions (if any)
Step 13 – Contact Information (Optional)
While optional, it is recommended that the lessor includes a means of contact (name, phone number, and email address) for the lessee if they have any questions or concerns during the lease. This can be the lessor or another person within the company.