Lease with Service Included –
One type of Bundled Lease is the service inclusive lease. If you may want all of the warranty, service, parts, labor and supplies included in your equipment lease, you are not alone. You should be aware of the pitfalls and effective alternative methods to service coverage. You can decide if a lease with service included in the lease payment is really what’s best for you, once you have the whole unspoken truth about this type of bundled lease.
Consider the case of a small law firm, “Doe Esquire”
Doe agreed to a lease of a rather popular, big name mulfi-functional copy, print, scan, fax machine. The copy machine was brand new. The Doe firm reviewed three quotes from which they chose to deal with “Favorite copiers”. They chose the 60 month (longest term) lease to keep the payment to a minimum. Favorite copiers, the dealer, had been in business for 4 years and had the lowest lease rates of the three company quotes. Their deal seemed to offer the best value with payments of $279.00, including service.
Maintenance Coverage Under the Chosen Lease with Service Included
The lease with service included, allowed 10,000 pages per quarter. The inclusive maintenance was not listed in the lease itself. Instead, the service agreement was a separate document from the lease. The lease, like most leases, had the no implied or expressed warranties clause. The maintenance agreement listed the overage rate per page at .01 (1 cent) per page. That was an additional cost, over the allowed 10,000 pages per quarter. The salesperson assured that the 10,000 pages per quarter was included in the lease payment. The box was checked: “service included in lease”.
The First 28 months of the Lease
The copier with all of its functions, worked perfectly (almost) for nearly 3 years. A total of two service calls had been completed to date. Four different toner deliveries had been made, all at no cost. This was consistent with the maintenance contract that was signed with the lease. The payments were just what they were told, except for delivery fees each month for $9.00 which had been overlooked during the lease reviews. The lease had gone up a few bucks at the beginning of the second year. The increase was explained as being in the maintenance agreement. That was confirmed as a true statement. Overall, the firm had been satisfied, thus far.
The Problems Begin To Start
The copier on the lease with service included started to cause problems by month 35. The technician who had been out several times stopped showing up and an apparent newbie began coming. It was discovered their favorite tech had been relocated to a new area. The problems with the copier were recurring and even when they would get it fixed, another problem would occur. The Doe Esquire Firm had become displeased and asked for a replacement.
Sorry for the inconvenience
The copier was still actually good, everyone thought. The problem was that the copier was only going to be as good as the service. It was apparent that the service wasn’t what they had anticipated and bargained for. In short, Favorite Copiers was doing a poor job of fixing the problem. They wouldn’t replace the machine because, they said it was owned by the leasing company. They offered an upgrade replacement on a slightly used machine. It would involve a new lease that would “take care of the old lease”. The new lease, even with a “demo” model was more expensive by 35%. Disgusted and Angry, Doe Esquire contacted the leasing company, “Awesome Finance”. Awesome Finance customer service was friendly, but explained that the lease had more than two years remaining. They covered the non-cancellation clause which didn’t help. Awesome Finance also explained that the service agreement which was financed in the lease is a service of Favorite Copiers, the dealer. It was further explained that Awesome Finance does not imply or express warranties of any kind, stated in the contract. After much debate and threat of non-payment, Doe Esquire once again called Favorite Copiers and demanded to speak to the president.
Unbundle the Lease with Service Included
The president of Favorite Copiers agreed to let Doe Esquire out of the service agreement. Because the service agreement billing was simply collected with the lease, it could be cancelled by an agreement with the dealer (Favorite Copiers) and Awesome Finance (Lessor). In other words, the service wasn’t prepaid to Favorite Copiers. You see, the service included with the lease was a “Pass Through” with each lease payment. Favorite copiers had been receiving $36.67 per month (1.1 cents x 10,000 pages per quarter, divided by 3 months) of the $279.00 lease. In other words, even with the one annual increase of 10% on the maintenance portion, the service was still a small percentage of the total lease cost. The choice, Doe Esquire thought was to try to unbundle the service from the lease. That would make it just a lease without any service for $242.34. Then, Does Esquire would have to get service elsewhere. It seemed like a plausible solution to a bad situation. After having the receptionist call every dealer listed on Google in their area, the results were in.
Nobody wants to take on someone else’s problems
Four of the 9 dealers called returned the phone calls. Of those four companies, each of them wanted to charge between $80.00 and $220.00 to inspect the machine to put under contract. After choosing a potential service contract dealer to replace Favorite Copiers, the technician came out. He was sharp as a tack, nice and professional. He explained that the machine was in need of some expensive parts. He further explained that the cost would be around $1800.00 to bring it to specifications before putting it under contract. In addition, their rate would be three times as much as Favorite Copiers had built into the lease with service included. This was not going to be an economically viable solution.
A Brand New Machine is in the Future
Doe Esquire wound up leaving the machine on the lease with service included. The solution they hoped for was worse than the problem itself. Doe Esquire didn’t want to throw good money at a bad situation. That would just snowball the whole ordeal. They decided to keep the “old” machine as a backup, continue paying the lease with service included and get an additional copier printer. They decided on another dealer, to nobodies surprise. It left a bitter taste, but they would move forward. Doe Esquire was a growing concern, not to be distracted for long. They decided on a 36 month lease this time and kept the service agreement separate from the lease contract.
The lessons to be learned
Doe Esquire got an education the hard way
- Included service doesn’t guarantee satisfactory service or performance as it is not discussed in the lease other than “no implied warranty“
- Sometimes it is better (usually it is) to keep the service separate from the lease payment. It avoids being locked or trapped in to a bad situation and being put at the mercy of the dealership.
- lease with service included does not avoid rate increases for service. While not necessarily unreasonable, an increase can be part of the small print in the service agreement that is not actually part of the lease. It is critical to understand all of the aspects of the service agreement, even rate increases.
- Awesome Finance was not going to volunteer information or discontinue the service. In that regard, Doe Esquire was stuck in between a leasing company and a not so happy relationship with a copier dealer.
- They also figured if they had gone with a 36 month lease, they could have gotten through it with only a couple months of pain. In hindsight, the firm could have afforded a higher payment to begin with had they expected the equipment wouldn’t last. The fact that they still had an expensive machine that was only capable in a reduced used situation meant that the lease outlived the intended use of the equipment.
It is unknown if Doe Esquire might have received legal relief had they pursued it. I personally have been both a party to and a witness of many similar bundled leases with service included. As a copier dealer for many years, I can assure the reader that this is a common scenario. Sometimes it turns out fine and everyone is happy. However, it is the circumstance such as you’ve read about here that one must be prepared for. I caution anybody from taking the sales persons’ word for anything they can’t see in writing. A new copier should last five years, but they don’t always. The reason residuals values are so low (7-10%) on copiers for five year terms, is because the asset is nearly used up at 5 years. It is certainly something to consider.
Tip: Beware of equipment dealers discounting service so heavily that it can’t possibly be worth while beyond a short period of time.