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Monday, July 11, 2011
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The word commitment means that someone is bound to proceed or they may lose whatever fee or collateral they presented, should they back out of the commitment. We have many types of commitments in leasing from committing to a future rate to funding commitments. Most often fees are attached.
Some sales people think that once a lease proposal is signed they have won the deal. This is not so, because the proposal is not binding and is subject to many adjustments. However, it is confirmation of a few facts that support the intent of the parties when tax or legal questions arise later on. A small Lessee commitment fee (say 2% of equipment cost or one month as a security deposit) required in your proposal is support that the lessee will proceed with a lease in the future. If a Lessee agrees to sign your proposal without some financial commitment, they do not feel bound by the deal and may chose another Lessor who offers a better program, or cheaper rates, before you may obtain an approval or have lease documents signed.
All proposals have the basic that:
“Lessee shall remit a commitment fee equal to one percent (2%) f the equipment cost to the Lessor in good faith when this proposal is signed and accepted. This fee shall be used to reduce the first rental payment equal to the amount of the fee, if the lessee proceeds with the lease described in this proposal.
“If for some reason the lessee decides not to proceed with the lease the fee will be considered earned by the Lessor to compensate the Lessor for the evaluation expenses. If the Lessor decides to reject the lease then the fee will be returned to the lessee within thirty days after said rejection.”
Many now charge a flat fee, usually for processing, as well in addition a commitment fee.
Another commitment is to hold a rate until delivery, usually asked for by the lessee, if there is a fear of rising rates in the future. Depending on funding capabilities some lessor’s are willing to provide rate protection but there needs to be a fee or a penalty to bind the lessee to the agreement.
Commitments to fund equipment leases in the future bound by a lease line of credit are an excellent method to create a large deal out of many small transactions. A lease line of credit requires proper language to cover rate commitments, maximum terms and funding, plus any undesirable equipment.
Any commitment, regardless of purpose must be spelled out so there can be no disagreements when differences arise. Without a written agreement that includes all of the contingencies all parties believe something different and assume what serves them best at the expense of the opposing interest. Then I get to represent you in court as an expert witness to explain why you were so vague
Mr. Terry Winders, CLP, has been a teacher, consultant, expert witness for the leasing industry for thirty-five years and can be reached at email@example.com or 502-649-0448
He invites your questions and queries.
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