Issues Related to a Lease Agreement

This document serves as a checklist of the most frequent legal and commercial concerns that arise in an equipment lease agreement. A detailed understanding of these points will help you identify key considerations when negotiating or reviewing an equipment lease.

Term and Rent

What is the initial duration of the lease? What is the agreed rental amount? When and how must rent payments be made?

Claims Against Supplier

Is the lessee allowed to pursue claims directly against the equipment supplier, such as those related to warranties, refunds, or pricing adjustments? If such claims result in a settlement, is the lessee entitled to retain the proceeds?

Transfers

Does the lease limit the lessor’s ability to transfer or assign its interest in the leased equipment to another party?

Representations and Indemnities

Are specific representations required to comply with regulatory obligations? Is the lessee responsible for paying property taxes, licensing fees, or public liability insurance? To what extent must the lessee indemnify the lessor or other parties against liabilities, risks, or associated costs?

Claims

Is the lessee permitted to initiate legal proceedings or take other actions in the name of the lessor to assert claims against third parties? Is the lessee’s right to retain compensation for losses clearly protected?

Renewal Options

Does the lease offer a renewal option? If so, what is the duration and rental amount for the renewal term? Note that renewal provisions can affect how the lease is treated for tax purposes.

Subleasing

Can the lessee sublease the equipment to another party? If yes, under what specific terms and conditions?

Maintenance

Which party bears the responsibility for maintaining the equipment during the lease term?

Stipulated Losses

What specific amounts must the lessee pay if the equipment is lost, stolen, or destroyed? Are these amounts in addition to or instead of the replacement value of the equipment? Such losses may be calculated using a formula based on unpaid rent and the lessor’s lost tax benefits. If the lease may be sold to tax-motivated investors, stipulated losses might reflect the investors’ lost tax benefits rather than those of the original lessor.

Insurance

Who is obligated to insure the equipment? In case of loss, theft, or damage, who is entitled to receive the insurance proceeds, and how are they distributed?

Amendments

Does the lease allow amendments in response to changed circumstances? This is especially important for long-term leases where the value of the equipment may change significantly over time.

Purchase Option

Does the lease grant the lessee an option to purchase the equipment? If so, what is the purchase price, and how and when must the option be exercised? Note that purchase rights may influence tax classification of the lease.

Termination

Under what circumstances may the lease be terminated early? Does loss or destruction of the equipment trigger termination? Are any payments required upon early termination? Does the lease allow for termination in cases where legal or economic factors make continued use impractical?

Termination Costs

Who is responsible for costs associated with returning the equipment at the end of the lease term? These costs may include dismantling, packaging, shipping, insurance, and related expenses.

Master Leases

Does the lease require a new contract for each additional piece of equipment, or can new items be added via a simple schedule under the same master agreement? The latter option can result in significant administrative and financial savings when leasing multiple items over time.

How to Use This Sample Format

Carefully review each section to understand what matters most in a lease and how each issue may impact your rights, obligations, and risk exposure during the lease term.