Making or breaking your business can be just a matter of having the right and essential equipment for it. Whether you’re establishing or expanding your own business, there are many ways to get equipment and one of them is through heavy equipment leasing. But before you seal that deal, protect yourself first by retaining the services of an asset equipment leasing lawyer.
What is heavy equipment leasing?
Heavy equipment leasing is a legally binding contract, where you (as the lessee) can acquire equipment or machinery from a financial institution (the lessor). This contract will be subject to a definite term and periodic payments to the lessor (e.g., monthly, quarterly). In heavy equipment leasing, what is granted to you is not ownership of the equipment but only its use; this means that ownership is still retained by the lessor.
While a heavy equipment lease is commonly used by businesses in the construction and mining industry, others can also make use of this type of lease. Some common examples of equipment that can be the subject of a lease include:
- medical equipment
- forestry and logging
- maritime equipment
- utilities production
- food production
What counts as heavy equipment will also depend on your lessor, subject to the equipment they offer and its availability.
Here’s a short video that will explain more about heavy equipment leasing:
To know more about heavy equipment leasing, contact a heavy equipment leasing lawyer in your area. If you’re based in Toronto, reach out to the best asset equipment leasing lawyers in Ontario as ranked by Lexpert.
Features of heavy equipment leasing
To acquire the equipment that your business needs, a heavy equipment lease offers the following features:
- making equipment available: allows you to acquire expensive equipment even if you don’t have large cash on hand
- cost savings: your capital is preserved because of the periodic payments, instead of a one-time large payment
- flexibility of lease: can be negotiated and renewed according to the terms of the lease or the parties’ subsequent agreements
- tax benefits: your tax liability is reduced because the expenses on the leased equipment can be deducted as part of your business expenses
How does heavy equipment lease work in Canada?
Since heavy equipment lease is a contract, the laws regarding contracts, its interpretation, and enforcement will apply to your relationship with your lessor. All rights and obligations between both parties are contained in the contract, which is why it’s important to thoroughly review it before you sign anything with the lessor.
In addition, other laws on equipment leasing may also apply. This is where the assistance of an asset equipment leasing lawyer is needed.
Here’s the process for heavy equipment leasing with a lessor or financial institution:
- Fill out an application with the lessor
- Lessor evaluates your profile (e.g., credit score, business)
- Lease contract is drafted, to be reviewed by both parties
- Contract is finalized and signed
- Equipment is released
Understanding lease terms and agreements
Some of the terms of the contract which you must keep an eye on are the following:
- lease amount and other fees
- amount to be paid periodically
- date of periodic payments
- computation of interest rates
- grounds for termination and cancellation
- conditions on the equipment’s use
If you have any questions regarding your contract’s terms and conditions, showing it to an asset equipment leasing lawyer would be a wise move.
Non-payment of the lease
The provisions about terminating your lease contract or the breach of the lease are equally important. Its effects are usually detailed in the contract, including action the lessor can take against you.
Pre-termination and cancellation
Since the lessor has retained ownership of the equipment, one of its consequences is that the lessor can cancel or terminate the heavy equipment lease. However, the specific grounds for cancellation or termination of the contract must be specified in your contract. With the help of your asset equipment leasing lawyer, you can either:
- review the contract to see if the grounds are specific enough (i.e. not cause confusion in the future); or
- negotiate the contract with your lessor if there are grounds you would like to be added, removed, or reworded
What happens to equipment at the end of the heavy equipment lease?
Once the lease contract ends, there are a lot of end-of-lease options available to you as the lessee. These options must be clearly explained in your lease contract. Your lawyer could explain this to you as they read (or draft) your contract.
If anything goes wrong when using these end-of-lease options, your lawyer can also point out the best legal option that you have. These options may differ with financing contracts, such as industrial equipment finance.
End-of-lease options
Depending on your lease contract, here are the possible options that you have after the heavy equipment lease has been terminated:
Return the equipment
You will have to return the equipment to the lessor, at your own expense or the lessor’s depending on the contract. In other cases, this is coupled with another option of entering another lease for different equipment.
Returning the equipment is beneficial if it’s not that expensive, considering the costs of dismantling and disabling it. If the equipment has also reached its service life, then it’s better returned.
Purchase the equipment
Here, you can buy the equipment instead of returning it to the lessor at the end of the contract’s term. Your lease contract must include a computation or formula of how much you’ll need to pay if you want to purchase the equipment. This option is better if returning the equipment would be more costly and if the equipment still works well for your business.
In some cases, these options may overlap with each other or may even exclude other options. Again, your heavy equipment lease contract would be the binding document to check out as to your end-of-lease options, along with the other terms. It’s also not bad to consult a lawyer on what option is best for your business.
Check out our directory of the Lexpert-ranked best asset equipment leasing law firms in Canada for more details on heavy equipment leasing.