Guide to Equipment Leasing End of Lease Buyout Provisions

Avoid Mutually Agreeable Price

Watch out for this one. Usually this one contains a provision that if the parties don't "mutually agree" to a purchase price, that something far more expensive will occur such as an automatic renewal of the lease for an additional year at the same lease payment. Congratulations! You just turned a 36 month lease into a 48 month lease and you'll have to go through the whole "mutually agreeable" process again in 12 months. Put that into your financial calculator and calculate your IRR.

I recommend: Think I'm kidding?  Here's an article that demonstrates how a company got trapped by this.  A fine-print trap?

Ask for a Cap to the Fair Market Value (FMV)

This is simple. You can get a good sense for the lessors intentions by simply asking for a cap on the FMV. The clause would read something like this: "Fair Market Value not to exceed X% of original cost." Note: See your accountant on this one if you're trying to create an operating lease. Depending on the size of the cap, this could have negative effects on this desire.

I recommend: Here's an article that suggests the same tactic I am.  Ten Equipment Leasing Tips - Save a Bundle on Your Next Lease

Know the other types of FMV and what they mean

How about Fair Market Value (removed)? Think about that telecom system that's installed on several floors, running through the walls and your ceiling. This is the value of the equipment that INCLUDES the cost of removal from your site and moving it to another location. So now it's not just the value of the equipment is it? And if you didn't read and understand that one little parenthesized word "removed" you could have cost your company thousands more dollars.

I recommend: Here's a link to an equipment appraiser's site that reference a few other types of Fair Market Value and Liquidation Values that you should learn about:  We Know the Meaning(s) of the Word "VALUE"