Getting Out of an Equipment Lease

It can be a nightmare for your company: The monthly costs for that behemoth of a copier or other large piece of equipment are gnawing at the bottom line. The sales rep caught you at an unguarded moment and made this machine sound like something you desperately needed to replace several older models.

In fact, it’s slower than you thought and only performs half the functions that your company needs. And at $725 a month, with 21 months to go on the lease, it’s anything but a bargain.

You’d like to ditch the lease, but can you? 

This dilemma is still another spin on contract law is there something in the contract that will let you wiggle out? Some contracts can be cancelled if marred by any of these factors:

• Illegality. If the microscopic print at the bottom reveals that the true annual percentage rate (APR) is 38 percent, state and federal regulations would make it illegal and unenforceable.
• Outright unfairness. If a bargain is too one-sided, a court can refuse to let the contract stand, or can strike the offensive portion (if possible) and leave the rest.
• Misrepresentation. For example, a quadruple your sales overnight manual and CD Rom set that will win you at least 50 percent more customers in the first month. In fact, no company has quite hit that target yet, but lots of manuals have been sold. A misrepresentation that persuades you to sign a contract is always suspect.
• A significant mistake or misunderstanding. If what you got isn’t what you thought you’d get, your good-faith intent to enter into the contract in the first place is undermined.

Most sales or leases of merchandise in the U.S. are covered by the Uniform Commercial Code or UCC. A seller can make an “express” or outright warranty and also “implied” warranties that the item would pass in the business without objection, and is fit for its intended purpose. So if you can show that the machine isn’t up to task, you might prevail. Beware, though: The seller or lessor can exclude all these warranties from a contract.

So what are your best bets?

• Try to negotiate a shorter lease term or a lower payment.
• If you have no luck dealing with the lessor, consider a business mediator.
• Ask your attorney to negotiate for you and explore your legal options.
• Rack your brain for any other viable reason that might allow you to get out of the lease.
• Look for someone to take over the payments.

Before you lease or buy office equipment, ask:

1. Did we shop around for the best price/service options?
2. Do we understand the contract?
3. Is every important term written into the contract? Include verbal promises like: “This baby will go from zero to sixty in four seconds.”
4. Did we take the item for a “test run” before committing to it?
5. Have we discussed leasing with our accountant or CFO to make sure it’s the best option? Have we considered the tax consequences?
6. Is the lease term short enough that the equipment won’t become obsolete?