Beware of the Pitfalls of Leasing

That new MFP you’ve had your eye on offers all of the features that your office requires. With a range of capabilities, this networked device will enhance productivity and cut administrative costs. There’s just one catch. The price tag is much higher than you planned to pay, but you have options, and one is to lease.

There is an upside and a downside to leasing office equipment. For the end-user, to be forewarned is to be forearmed. In addition to helping a business preserve its cash on hand, leasing enables it to keep pace with the latest technology by turning over its office equipment every several years. But while leasing has its advantages, customers need to pay close attention to the notification clauses in their lease agreements. Failure to do so can prove to be a costly option.

The leasing game played by some leasing companies is designed for their customers to fail, in part because of their need to compensate for shortcomings that are inherent in the business model. Leasing companies often record arbitrarily high future value estimates on their balance sheets for office equipment. These estimates, when coupled with the stream of lease payments, show a respectable yield to the lessor’s bottom line. Once a piece of equipment comes back at the end of a lease, the lessor must deal with the actual future value which is often lower than the original recorded depreciated value. When the actual value is plugged into their formula, lessors show a much lower yield than the value already recorded in the balance sheet.

This is why leasing companies are reluctant to receive office equipment back at the end of the lease. As a result, leasing agreements are heavily weighted in the lessor’s favor. For example, lease agreements rarely include a provision for the early return of equipment, and there is a strike period or window of time prior to the end of the lease within which the lessee must submit written notification of cancellation. The penalty for failing to notify the lessor within the required period of time typically consists of an automatic renewal or “evergreen period.”

Finding a leasing company interested in partnering and doing business with customers over time rather than bumping up rates whenever you’re late with a payment is important. There are many conscientious dealers that manage their customers’ lease agreements to ensure that all notifications are understood and that return instructions are provided well in advance. Partnering with a dealer that is experienced in the leasing game can mean the difference between saving or losing money on the deal.