Copier leases are amongst the simplest yet most misunderstood financial documents ever written. Buried amidst the single page of fine print representing the terms and conditions of a copier lease agreement is several landmines waiting to explode on unsuspecting lessees. In having provided Konica Minolta copiers for the past 28 years, I have literally seen hundreds of companies blindsided by the conditions contained amongst the fine print. Most notably;
Leasing Terms for Business Copiers
Copier lease agreements do not end once the initial monthly lease term is reached. Every copier lease agreement contains a condition that states that the lessee is required to provide written notice to the lease company within a small, pre-determined window of time outlining the lessee’s intent to renew or terminate the lease agreement. The absence of this written notification will result in an automatic renewal term of up to 12 months of additional payments. In 28 years I have never seen a lessee successfully negotiate having this condition waived or forgiven.
Generally you will find language in the second paragraph of the copier lease terms that states something to the effect of “lessee must provide written notice of their intent to renew which must be received no sooner than 180 days and no later than 90 days from the scheduled end of the original lease term. Failure to send this notice will result in a renewal of the copier lease for 12 months beyond the originally scheduled lease term. The renewal period can vary from 1 to 12 months depending on the lease company. ” The renewal period is non-negotiable and carries the same terms and conditions as the original terms including the need to send a letter to the lease company prior to the new maturity date. If the letter is not sent and received during the small window of time leading up to the conclusion of the new extended term than the lease will automatically renew for an additional period of time consistent with the initial terms and conditions. In summary; Copier lease agreements don’t end on their own initiative. The lessee must provide written notice to the lease company instructing that the lessee does not want the copier lease to renew. Worthy of note is that this letter is not to be sent to your local copier service provider that delivered and services your copier. Instead this letter must be sent to the lease company to whom you make your monthly lease payment.
Copier leases do not result in automatic ownership at the scheduled end of the lease term. Even upon completion of the scheduled term of payments the lessee does not own the asset once the final payment has been made. All leases require a buyout cost over and above the agreed upon stream of payments in the event that the lessee wishes to own the equipment at the successful completion of monthly payments. The overwhelming majority of copier lease agreements are based on a Fair Market Value or FMV buyout option. This option states that the lessee has the option at their discretion to exercise any of the following options based on the lessee’s timely written instructions; the available options are to purchase the equipment, renew the existing agreement, or terminate the agreement. The lessee can choose the option based on their discretion.
Purchase Option: The lessee has the option to purchase the copier at the Fair Market Value which is determined by the lease company based on market value at the time the purchase option is exercised. Note that even though the lease company ultimately dictates the buyout price the lessee can frequently negotiate a more competitive price with the realization that the copier holds virtually no true value to the lease company at the scheduled end of term. The leverage exists in favor of the lessee when determining the market value and the lessee would always be well advised not to accept the lease company’s first offer as to the copier’s value.
Terminate Option: The lessee has the option to terminate the existing lease agreement at the scheduled maturity date so long as the lessee has provided the lease company with timely written instructions indicating this option. Note that the written instruction must be sent during the small wind of time outlined in the terms and conditions. This window is generally somewhere between 30 and 90 days prior to the maturity date of the original term. A significant point of note is that when the termination option is exercised it is the lessee’s obligation to have the copier shipped to the destination of the lease company’s choice. This destination can be anywhere in the United States. Shipping costs can frequently run from $400.00 to $800.00 depending on the size of the copier and the ship to destination. See more specifics on the lessee’s shipping obligations further on in this blog.
Renewal Option: The lessee has the option to renew the existing lease agreement for the same payment as is provided during the initial term of the lease. Should the lessee opt to renew the agreement there is no action to be taken as the existing lease conditions dictate this renewal in lieu of written notification instructing otherwise.
Leasing Business Copiers Incurs Shipping Costs
Copier lease agreements require lessee to pay shipping costs to return the equipment; In the event that the lessee chooses to terminate the lease agreement the lessee will be required to arrange and pay all shipping costs to have the copier returned to the destination of the lease company’s choice anywhere in the United States. Shipping a copier can be extremely expensive especially if the destination is out of state. Lease companies will provide a list of preferred shipping companies all of which charge a premium price to handle the shipping process on the lessee’s behalf. Often the lessee can make their own shipping arrangements at a cost markedly lower than that charged by the lease company’s preferred vendors. If the lessee has arranged to lease or purchase new business copiers, the lessee can often negotiate to have the provider of the new equipment inherit the shipping costs as an incentive to provide a new copier. Lessees are advised that shipping charges are generally $400.00 to $800.00 or more depending on the size and weight of the copier, the shipping destination and the individual shipping company’s rates.
Copier lease agreements require you to add the Lease Company to your existing insurance policy as the sole loss payee for the value of the copier or the lessee will be charged an insurance surcharge that is generally 6-8% of the monthly lease payment; The insurance term is not too draconian so long as lessee is aware that this condition exists. Upon initiating a new lease agreement the lessee should contact their business insurance agent and request that the lease company be added as a sole loss payee to cover the full value of the equipment being leased. In most cases the lessee’s insurance agent will mail the certificate directly to the lease company on behalf of the lessee. The potential issue is that many lessee’s either don’t have business insurance or are not aware that they are required to provide their own insurance and often end of paying a significant monthly insurance surcharge without it ever coming to their attention.
Copier lease agreements have a clause that states the lessee will be charged a lease initiation fee for the setup of the lease agreement; The lease initiation fee is a onetime charge that will be itemized separately on the first monthly lease statement. Generally the lease initiation fee will range from $70.00 to $135.00. This fee is not negotiable and not inherently negative yet many lessees are caught off guard when recognizing this charge on their initial invoice.
In summary none of the terms and conditions in a lease agreement are entirely draconian or unfair however it is always in the lessee’s best interests to have a clear understanding of their obligations prior to entering into a copier lease agreement. For more information on important information leading to copier lease or ownership look for future blog posts at www.csbscopiers.com.
