How Do I Get Out of an Equipment Lease?
Equipment leasing is a great financing option because it essentially allows for lower monthly payments typically spread out over the course of a fixed period rather than purchasing the equipment in a lump sum.
But what happens if you want out before the term is over?
You might find that equipment leases are quite difficult and usually expensive to get out of, due to the simple yet ironclad agreements governing them. A typical equipment lease states that you will use the equipment for a specified time, and you pay a given monthly amount over an agreed-upon period. It doesn’t get any simpler than that.
Still, if the time’s come to get out of the contract, then you have to do what you have to do. Only — how do you go about it? Here’s some ways to get out of an equipment lease:
Appeal to the continuance of a long-term relationship with the lessor
This is a great exit plan if you lease a lot of equipment from the lessor on an on-going basis and have maintained a good business relationship. They may be willing to renegotiate the terms of the agreement if it means there will be more fruitful deals in the future. If the vendor won’t deal with you directly, consider getting a mediator to help you square things in a way that favors both parties.
Try negotiating an immediate lower payment
This method involves doing a calculation showing that the vendor will make a higher rate of return by taking a smaller payment now rather than continuing to receive monthly payments over the remaining lease term. Of course, the amount you pay now will be significantly higher than a comparable loan payoff amount, but also considerably lower than the total of the remaining payments. Keep in mind that this strategy is only practical if the economy is generally good and the vendor has a new place to invest the money at the time.
Hire a local business attorney to check out your legal options
If negotiating with or appealing to the lessor isn’t working out, you could always turn to a lawyer to help you out. Granted it’s not the most economical option, but if there’s anyone who can help you dissect your lease agreement to look for loopholes and escape clauses, it’s a business attorney. Usually, they’ll start out looking for wording like “in case of….” or “in the event of…” For insurance, if the equipment is longer working, that could be your out.
A lawyer can also help you find certain circumstances through the state laws regulating leading to breaking your equipment lease.
Purchase the equipment and re-sell
If all else fails and you have the funds for it, simply buy the equipment outright and sell it off. Of course, this will depend on a number of factors, including the type of equipment, how quickly you can find a buyer, and if there will be other costs incurred when selling the equipment (e.g. advertising, shipping, etc.).
Before you lease equipment in the future:
Check with your accountant or financial advisor to see if leasing is the better option, compared to loan financing or downright purchasing.
Read the terms of the agreement carefully. Ask questions if there’s areas that are unclear or better yet, bring in a lawyer to check it out for you.
Test the equipment and be sure it delivers exactly as expected before you commit to it.
Don’t feel pressured to take the first deal. There’s often a wide range of options available so you don’t always have to stick with the first ones you see.
As much as possible, go for the shortest lease term you can, unless you need the equipment over the long term, and it will remain relevant throughout that period.