Equipment Lease Agreement

An equipment lease agreement is an agreement between the lessor and lessee that allows the lessee to use the equipment for a defined period.

The lessor is a party who owns the equipment, and the lessee is a party who uses the equipment. This is done in exchange for some consideration, i.e., lease rentals. The period of usage of equipment is fixed and is termed the lease period. At the end of the lease period, the lessor may give the lessee the following options:

  • Renewal of the lease agreement
  • Terminate the agreement
  • Option to buy the leased equipment

This depends on the terms and conditions of the lease agreement entered between both parties.

Components of Equipment Lease Agreement

An equipment lease agreement has the following components or terms to which the parties agree.

  • Equipment under agreement
  • Term of lease
  • Rental payment
  • Security deposit
  • Taxes
  • Maintenance
  • Use of equipment
  • Options at the end of the lease period
  • Permits
  • Utility charges
  • Remedies in case of default
  • Notice for termination
  • Insurance
  • Damages
  • Limitations to damages
  • Other general provisions
Equipment Lease Agreement

Equipment Lease Agreement with an Option to Purchase

This is a contract between the lessor and the lessee, where the latter is given an option to purchase the equipment after the tenure of the lease is over. For example, the tenure of the lease agreement between John (owner) and Smith (lessee) is for 10 years. On the expiry of the period, if Smith has the option to purchase the equipment, then such an agreement is termed as an equipment lease agreement with an option to purchase.

Also read about Equipment Leasing Companies.

Long Term Equipment Lease Agreement

Long term agreement is a long-term contract that cannot be canceled. Under this type of agreement, the lessee is required to fulfill all the obligations associated with the asset, like insurance, maintenance, etc. The lessee can avail of tax benefits for the leased asset. The tenure of long-term lease equipment is fixed as per the terms and conditions suitable to both the lessor and the lessee.

Conclusion

The equipment lease agreement is an essential document that clearly states the terms of the equipment lease, parties to the agreement, rights and obligations of the parties, ownership of leased asset, liability for losses and damages, warranty and guarantee clause, who is responsible for paying the taxes and maintenance costs, etc. So it is very important that the parties entering into the agreement thoroughly go through the terms and conditions mentioned in the agreement.

Also, read – Accounting for Equipment Lease.



Sanjay Borad

Sanjay Bulaki Borad

Sanjay Borad is the founder & CEO of eFinanceManagement. He is passionate about keeping and making things simple and easy. Running this blog since 2009 and trying to explain "Financial Management Concepts in Layman's Terms".

1 thought on “Equipment Lease Agreement”

  1. Hi my name is Jack I read your blog regarding equipment lease agreement this blog is very informatic and useful for me. Thanks for sharing the information this will really help me a lot in the future.

    Reply

Leave a Comment