Commercial Equipment Lease Disputes

As a result, commercial leasing agreements are now commonplace. Whilst a necessity for many businesses, there are a several factors to consider.

There are a various types of leasing agreements which have different practical consequences for the parties – some examples include finance leases, hire purchase agreements, operating leases, sale and leaseback, and retention of title agreements. Below is a more in-depth analysis of a few of these options. The particular terms of the arrangement will affect both the lenders and the businesses obligations and rights relating to the machinery, so it is sensible to seek advice prior to entering into an agreement.

In most leasing arrangements, and notwithstanding the true legal ownership (which often sits with the lender), the borrower bears most of the risks and rewards associated with ownership of the machinery. Whilst the machinery is in the business’ possession the business will usually be responsible for insuring and maintaining it and will be liable for any loss/damage caused to it.

Finance lease

In a typical finance lease, the manufacturer sells the machinery to a third party (usually a bank/lender) for an immediate payment and the lender enters into a lease agreement with the business. The business then pays the lender rental payments reflecting the cost of the machinery plus a return on capital (similar to interest). The business will never own the machinery but will have use and possession; the borrower is also generally liable for maintenance and upkeep of the machinery for the duration of the agreement.

What happens at the end of the lease period (usually once the machinery is at the end of its working life) will depend on the particular contract between the lender and the business. The borrower might be entitled to continue to rent for a nominal sum, or return the machinery to the lender for sale, or in some cases, sell the machinery on behalf of the lender (as the lender’s agent). In the latter situation, the lessee may be entitled to retain some of the sale proceeds as reimbursement for rents paid, although again, this will depend on the particular terms of the leasing agreement.

Hire purchase agreement

In a hire purchase agreement, the business will usually own the machinery at the end of the arrangement. The lender leases the machinery to the business, who makes regular repayments and then at the end of the hire period, the business is given an option (but usually not an obligation) to acquire the machinery for a specified sum.

What if things go wrong?

If issues arise, for example a machine breakdown or damage to equipment, it is worth speaking to a dispute resolution lawyer to ascertain the extent of your obligations under the agreement (and the legislative frameworks that apply). The lessee will often be obliged to continue making the repayments whilst any defects in the machinery are being fixed (and pay for the repairs – depending on whether manufacturer’s guarantees/warranties are available), even though the business won’t be able to use it in the meantime. The dispute may become more complex if the machinery cannot be repaired, or if the repair costs outweigh the value of the asset.

Often, leasing arrangements are categorised as business to business (B2B) transactions and so the enhanced protections contained in the Consumer Rights Act 2015 might not apply.