The Evergreen Lease: How to Cut Costs by Sticking to Your Equipment Lease Terms

During my tenure as a primary distributor, I had a conversation with an executive from an office equipment leasing company. We were discussing the return of a large quantity of multifunction copy equipment from a mutual customer. For this customer, my dealer had been made aware of all the lease requirements for notice of intent to return equipment at lease expiration. On behalf of my client, he was arranging for the return of the equipment. The leasing company executive was reluctant to provide information regarding the equipment return authorization.

To help me understand why I was hearing the reluctance on the part of the leasing company executive, I began asking probing questions to determine if he felt our client had broken the terms of the lease. I quickly confirmed that all the provisions of the lease had been followed to the letter. The real problem was that the leasing company expected their leases to be renewed for at least one additional renewal period.

The lessor’s executive admitted that his business model incorporated them by receiving the additional income of at least one renewal term. Their residual position (what they expected to receive from selling the equipment to someone else) was established by expecting this additional income. If they did not receive the renewal proceeds, their earnings were low (low) for that transaction.

Why are leases renewed?

I asked the executive how they could be so sure that the team would be renewed. Without hesitation, he responded because historically most of his equipment leases do. After getting up from the apartment, I asked his opinion why so many leases were being renewed. He responded that it was the failure to follow through on the expiration of the lease or the turnover in the client’s position that was responsible for notifying the leasing company in a specific time period (designated in the lease). Most copy leases are written for a 5-year lease term. Turnover (whether through promotions or churn) within a customer’s business typically occurs before the end of the lease. Also, during the course of busy days in the office, no one stops by to document lease expiration dates. It seems so far away and therefore unnecessary at the time.

Leasing companies frequently (usually quarterly) send equipment suppliers a list of their leasing portfolios with that leasing company in the hope that the supplier will upgrade the customer’s equipment and expand the customer’s leasing relationship with the leasing company. If the equipment provider is paying attention to their customer base, they will notify you that the lease is coming up (and try to upgrade your equipment). If an equipment lease is renewed, this makes it very difficult (read expensive) for a competing equipment provider to economically upgrade the equipment before the renewal term expires. This strategy is intentionally designed to give the incumbent equipment provider (and leasing company) a financial advantage to upgrade equipment before the lease renewal term expires. Renewing a lease limits your options, which is never good for you.

Only the incumbent equipment provider who agrees to use the same leasing company may upgrade equipment on a renewed lease without penalty. Any other combination of equipment provider and/or leasing company will have to pay the remaining payments of the renewed lease term (generally 12 months).

Why do I care about this?

The main reason you don’t want your lease renewed is that you are forced to pay new equipment costs (ie, the same lease payment) for your old, well-used equipment. In essence, you have no options. Conversely, if you are not affected by the lease renewal, you can always lease more productive equipment with more features for the same or less cost. Another available option is to unlock your same equipment (assuming it has been working well) for a shorter term at a significant discount.

There have been some failures of this intentional upgrade plan when customers are so enraged about the upgrade that they refuse to work with the equipment supplier or leasing company. As a result, some of the stringent requirements have been relaxed. You should check the verbiage in your current lease in the section labeled “End of Lease” or “Renewal” to determine expiration criteria.

What can you do?

To prevent your company from getting caught in the lease renewal trap, set up a calendar reminder on multiple support staff computers to remind them to send the lease expiration notice on time (usually 90 to 100). 120 days prior to lease expiration – check your lease for specifics). ). This should prevent staff turnover from erasing the memory of that necessary step. Another option is to set up “send late” emails from multiple computers to be sent to various staff members reminding them to send the lease expiration date.

There are also free external calendars that you can set up to send an email reminder to multiple people in case your organization deletes all previous user information from a computer. Apps like calendar.yahoo.com and Google Calendar can be set up to provide email reminders to multiple people to make sure your billing and promotional events are covered. This way, you can notify the leasing company in a timely manner.

As you run a new equipment lease, make a 30-day renewal mandatory before you approve it. If you miss the notice deadline, your lease is only renewed for 30 days. Remember that you must provide a written intent to return the equipment to avoid or end the renewal cycle.

When submitting the expiration notice, be sure to include the lease number, copier make, indicate your intent to return the equipment at the expiration of the lease, and request return authorization information. Address the letter to the same address you send your lease payments to (found on your monthly lease bill). Be sure to include your company name, mailing and email addresses, and phone numbers in the letter. A generic lease expiration template is available for download on our website at www.bottomlineadv.com under the “Resources” tab. Be sure to send the return notice via a verifiable mail method. Options include certified mail, overnight delivery service, as well as various multi-day delivery options, as long as you receive a tracking number. You must be able to prove that the notice reached the leasing company’s office within the time specified in the lease.