Form Leases and Specific Equipment
Small ticket and middle market Lessors come to rely on form lease documents. In most cases, these friendly and familiar forms are drafted to cover a wide variety of equipment.
Problems arise when Lessors step out of their familiar niche and into specialty equipment types without amending their form documents. The problems can usually be addressed by preparing simple addenda for use as supplements where unique equipment types are concerned.
Consider the following:
- Computers require specialized maintenance provisions and should be re-certified by the manufacturer or vendor at the end of the lease term. Often, special return provisions are necessary to ensure proper disconnect and handling.
- Motor vehicles may require specialized maintenance provisions and should always be leased with specific return provisions. Tires, brakes and engine condition should all be specified. Different language may be used in TRAC leases, of course.
- Motor vehicles, aircraft and other transportation equipment also give rise to additional liability issues. Some form leases do not have proper insurance or indemnification provisions addressing these issues. Liability may be further limited by restricting the use of equipment so that it must comply with applicable law and geographic limitations.
We are aware of at least one situation in which a leasing company tried to use its form lease for an aircraft transaction. The lease did not include language regarding FAA maintenance and use restrictions. The Lessor's problems did not arise until it attempted to realize its residual on the lease and found the prospective purchaser unwilling to pay full value given the lack of restriction on the Lessee's operation.
Preparation of special language for different equipment types is not expensive or time consuming. Failure to use the language, however, can lead to disaster.