Leasing 102
" Equipment Return Requirements "

by Mr. Terry Winders, CLP

Much has been said about good return language so our residuals are not in jeopardy due to poor equipment condition. However, it continues to be the poorest part of our documentation efforts. Usually because conservative residuals make even salvage values cover the risk. Once in a while the Lessor allows the return of poor equipment because it will still bring the residual amount and pressing the point would appear to make the Lessee upset and would endanger the continuing relationship. All of this is wrong and it is clear that many of us act like money lenders instead of true Lessor's.

We must also remember that we only get back what we describe, so good return language begins with good equipment descriptions. The UCC requires us to understand that we may not require the lessee to return the equipment to like new condition and this is why we must accept "normal wear and tear" .However, we can place requirements that the equipment must be properly maintained, and capable of performing its original function at termination. Also, we can require that there be no body damage, missing parts, or holes from unattached retained attachments. Paint restored to original color when company logo's are removed and all functions are up to industry standards. The list of return requirements are unique to each type of equipment but are as important as the lessee's requirement to pay the lease payment.

Now, the question of how to require the lessee to live up to the return conditions. Perhaps placing the return conditions on a separate schedule would give it more importance. Then you could send it to the lessee along with the 90 day notice requirement so they would have sufficient time to bring it back up to the return condition. You could also place a statement in the return requirements that the lessee "may" be subject to a fee not to exceed $500 for an industry expert, knowledgeable in the equipment, to inspect the equipment for deficiencies which will be repaired at the lessee's expense. Usually the treat of an inspection and the notice of there requirement to pay for repairs gets the job done.

If you are in the "Leasing" business and not in the money lending business then residuals and good return language should be important to you.

Mr. Terry Winders has been a teacher, consultant, expert witness for the leasing industry for thirty years and can be reached at leaseconsulting@msn.com or 502-327-8666