A lease term is typically expressed in months, although longer contracts may be expressed in years. In office equipment leasing, lease terms run from 12 months to 63 months. The most common lease term for brand new equipment in the copier business is 60 months. The most common lease term for used or refurbished equipment is 36 months.
The most fundamental feature to know about lease term definition is the inverse relationship between term and payment amount.
The longer the term, the lower the payment will be. The shorter the term, the higher the payment will be. There are three important factors that the future lessee should realize regarding lease term:
- Making the payment lower by electing a longer lease term is not necessarily a better solution (deal) for the you, the lessee.
- Just because a lease term is offered does not mean the equipment will last that long
- Because equipment leases are fixed to a specific term and non-cancelable, make sure you intend to have that equipment for the full lease term definition.
Let’s make sense out of each of the three preceding points: Suppose your business needs change and the need for the wonderful thingy you leased ceases to exist. What then? You are stuck. Suppose technology changes (no more paper printing required, for example) rendering your leased thingy useless. Once again you are stuck in a lease that is longer than you might have chosen. The lease term definition dictates the length of your legal responsibility to make the payment. Have you ever seen a car that didn’t hold out for the full term of the financing? Yet, the banks lend money for that term still. Similarly, in leasing terms lengths do not guarantee that the equipment will perform adequately for the lease term.
What happens when the lease term outlasts the leased equipment?
Unless you or your lawyer can find a legal issue beyond non working equipment, you’ve got three choices as I see it:
- You can trade up the lease – It sounds good, but involves taking the remaining payments and rolling them into the cost of the new lease. It’s expensive. In other words, you pay for it any way you look at it. You simply defer paying it over the next lease term.
- You can simply keep the equipment and do what you can with it, while paying the lease each month.
- You can buy out the lease. Unfortunately, the leasing company will not likely negotiate here. Why? Because they have a signed non-cancelable lease. Buying out the lease only gets it off your plate. You part with your cash and get rid of a problem. The unfortunate part is that the amount you pay is not just the principal. It’s interest, fees, and probably the residual too! In other words, it will be more than if you multiplied the remaining payments times the remaining term.
The relationship between lease term definition and payment amount must be viewed with a realistic eye. If I had a nickel for every lease I saw where the equipment didn’t last the term, I’d be rich. This is based on my experience of over 30 years in the copier business. More than 75% of that time I was a dealer, owner / operator, hands-on.