An equipment lease agreement allows a person or company owning tools, machinery, or other objects to rent those items to another party. Equipment leases can be as short as a day or as long as multiple years, depending on the contract and the needs of both parties. These agreements are also known as:
- Equipment rental contracts
- Equipment rental agreements
Using an equipment lease agreement protects both the person who owns the equipment (the lessor) and the person renting the equipment (the lessee) by explaining the specifics of each party’s responsibilities. If you want to lease real estate, you should use a land lease agreement or a commercial lease agreement instead.
What Is an Equipment Lease?
An equipment lease is a contract in which the equipment owner agrees to let someone else use that equipment in exchange for regular payments. Those payments may be made daily, weekly, monthly, or annually, depending on the industry.
Lease agreements allow the lessor (the equipment owner) to make a profit off of their property. Meanwhile, they give the lessee (the equipment renter) the opportunity to use the equipment without buying it outright. This arrangement makes equipment leases popular in many industries where equipment is expensive or only necessary on occasion.
Industries in which equipment leases are common include:
- Manufacturing (for specialized equipment like machining tools and plasma cutters)
- Transportation (for items like semi-truck chassis and moving vans)
- Construction (for heavy machinery like bulldozers and cranes)
- Restaurants (for appliances and catering equipment)
- Healthcare (for large equipment like power wheelchairs and x-ray machines)
- Recreation (for gear like snowshoes or four-wheelers near hiking trails)
How Does an Equipment Lease Work?
When a person or company wants to use some equipment without needing to purchase it, they can seek out a leasing supply company in their industry. If the leasing company has equipment available when the lessee needs it, the company will offer an equipment rental contract. This contract will include information like the terms of use for the gear, the length of the lease, and the financial details for the agreement.
Equipment leases typically have regular payment schedules, and the lessee agrees to pay a specific amount consistently in return for using the equipment. The particular schedule and amount of the lease payments will depend on the equipment and industry. Leases may also include interest. In many cases, late charges by the lessee will accrue interest daily or weekly until the late payment is finally made.
An example equipment leasing situation is an agreement between a lessor and a lessee in the restaurant industry. As an experiment, a restaurant may want to lease a professional-quality espresso machine from a restaurant supply company to complement their breakfast service. The lease allows the business to test having the espresso machine without potentially spending thousands of dollars on equipment. The regular payments may cost the same as loan payments, but since there’s no need for a downpayment, it’s still less expensive for the lessee.
How to Write an Equipment Lease
The lessor usually writes equipment lease contracts. To write an equipment lease agreement, you need to make sure you understand how you want your equipment to be handled. Here’s how to write an equipment lease that works:
- Gather both parties’ contact information. Start the contract with a section explaining who the lessor and lessee are. You may also list each party’s contact information for additional specificity.
- Describe the equipment. You should describe the equipment in detail, including any identifiable features like serial numbers and unique physical qualities such as alterations or existing damage. Describing the equipment protects both parties by acting as a legal record of the gear they have agreed to lease. A thorough description of the equipment can also prevent swaps.
- Negotiate the term. Make sure you clearly state exactly how long the equipment lease will last and when it expires.
- Determine the payments and deposits. The charges and deposit may change depending on the equipment you’re leasing. Clearly explain the rental costs and schedule, along with any deposits.
- Explain the terms and conditions. Make sure you include your conditions, like cancellation policies and penalties for damages, if you have any.
- Collect signatures. Finally, include a field where both parties can sign the contract and date it to make it legally binding.
If you’re ready to write an equipment lease agreement, you can get started with our in-depth free equipment lease template. Our form builder can help you customize the equipment lease agreement template into a contract that fits your needs.
What to Include in an Equipment Lease
Every equipment lease should include the following fundamental contract elements:
- Lessor: The equipment owner who will be renting out the equipment
- Lessee: The renter who will be paying for the privilege to use the gear
- Term: The length of time the lessee will lease the equipment. Lease terms are commonly set with a specific start and end date, but you can also list a period of weeks, months, or years.
- Equipment: The equipment that’s being rented. Many leases cover more than one piece of equipment. So this section can become long, depending on your circumstances.
- Rent: The amount of money the lessee agrees to pay the lessor for using the equipment. The rent section should also designate how often the lessee must pay rent and when the rental payment will be considered late.
- Deposit: Many leases require the lessee to pay a deposit for the equipment. This money is intended to cover repairs or replacement of the equipment if the lessee should damage it. Deposits may be refunded at the end of the lease, applied to the final payment, or kept, depending on the contract.
- Equipment Use Details: The rules the lessee must follow while using the equipment. These rules protect the lessor’s investment in the equipment by requiring the lessee to use it in designated, safe ways. For example, an espresso machine lease might require the lessee to use it only on-premises and perform specific maintenance to keep it in good condition.
- Delivery: How the lessee will take possession of the leased gear. Depending on the contract, the lessee may need to pick it up, or the lessor may deliver it.
- Defaults: The penalties for breaking the terms of the contract. This section can cover everything from the lessee breaking the equipment rental contract early to the penalties for damaging the gear.
Sample Equipment Lease
Below is a sample equipment lease agreement.
Equipment Lease
Tips for Writing an Equipment Lease
- Do your research before writing or signing a lease. Every industry’s leasing standards and concerns are a bit different. Before you write or sign your first equipment lease, research what other leasing companies in your field include in their contracts. Learn the standard lease periods, rates, and terms and conditions.
This research will help you understand whether the lease you’ve written is fair and help you determine whether you’re leaving out any necessary elements for your field.
- Consider maintenance. Equipment typically needs to be maintained to remain in good condition. While short-term leases of just a few days or weeks may not leave equipment requiring significant maintenance, longer leases probably will.
Any equipment lease can benefit from a clause explaining the maintenance expectations for the gear. Explain who’s responsible for equipment upkeep and how it should be performed. If the lessee is responsible, what do they need to do? If the lessor is responsible, how should they schedule it with the lessee? Answer these questions in the initial contract to prevent problems later.
- Consider insurance. Most leases require deposits to cover repairs, but you can go a step further. Lessors can require lessees to have the leased equipment insured for the duration of the contract. This arrangement does add extra costs to the agreement, but it can allow the lessor to request a lower deposit upfront. A good insurance policy will cover any repairs and replacements necessary and protect both parties from liability if the equipment is involved in an accident.
- Consider renewals. Many leases are designed to be temporary, but not all. Some leases are written to be renewed indefinitely or until the lessee cancels the contract. This kind of agreement is helpful for equipment rentals that may not have a set end date.
Even if you don’t want to set up a lease that renews automatically, you can still include a renewal clause in the contract. This clause specifies how the lessee can renew the agreement and any differences between the initial contract and the renewal. Many renewal clauses will cover details like whether the deposit carries over and any inspections that need to be performed before the renewal takes place.
If you’re ready to write your own equipment lease agreement, you can download our template or visit our form builder to get started.