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Equipment Lease Agreement

An equipment lease agreement allows a small or large business 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 equipment type.

Table of Contents

What is an Equipment Lease?

An equipment lease is a contract that binds the owner of equipment with the renter. In exchange for having the right to use the equipment, the renter makes consistent monetary payments to the rental company. Renting equipment is popular in many industries due to rentals coming in handy for one-time or minimal use applications. 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.1 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.

Equipment rentals are popular, too, as:

“On average, close to 8 out of every 10 companies (79%) finance equipment, including loans, leases, and lines of credit.2

Industries That Rent Equipment

  • 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.

How to Rent Out Equipment

Step 1 – Study the Market

An individual that intends to begin renting equipment should ensure there is space 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.

Step 2 – Purchase Equipment

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 equipment that should be purchased should be what the owner believes is the most-desired type of equipment in the area. Once the rental business has been established, owners commonly obtain more rarely used equipment to complete their offering.

Step 3 – Market the Rentals

To attract potential customers, the owner can utilize different forms of marketing, depending on their area.

  • Social media – Create a business page on Facebook. Just Facebook alone has over 2.6 billion monthly active users3, all of which can be marketed to (with no experience required).
  • Network – Utilizing 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.com offer an easy means of reaching a wide range of potential renters.

Step 4 – Create & Sign a Rental Agreement

Download: Adobe PDF, MS Word, OpenDocument

An equipment lease agreement keeps all of the parties on the same page in regards 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 legal weight if they needed to collect money for unpaid rent or damages to the equipment. Once the form is drafted it can be re-used 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.

Step 5 – Take Care of the Equipment

In-between being leased 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 needing to repair the rental 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 in which repairs are needed.

Sample

Download: Adobe PDF, MS Word, OpenDocument

How to Write

Step 1 – Party Names

Start by entering the date in 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 in which the lessee should deliver/send payments to.

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 required upfront by the lessor that is used to cover any lessee-caused damage 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

On the two (2) lines provided the lessor should state the general permitted use of the equipment. The lessor is recommended to 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, for example).

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 in which the parties will be signing the agreement. This is the date in which the contract will officially go into effect. Then, both parties will need to write their:

  • Signatures
  • 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 #, 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.

Sources

  1. Deciding Whether to Buy Construction Equipment or Rent
  2. ELFA Industry Overview
  3. The Top 20 Valuable Facebook Statistics