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Evergreen Clauses

by Terry Winders, CLP

A few years ago, in the data processing field, lessees wanted to have a lease product that would allow them to continue using the equipment after termination if the newest generation of equipment was still a few months off or the delivery of the new equipment was delayed. This led to a flexible lease with a month to month extension called an evergreen clause. This allowed the lessee to extend the lease month to month, after termination of the stated term, until they gave thirty days notice. The key here was that the extension was under the lessee's control. Not long after this it spread to other lease markets.

Many lessors found that when a standard evergreen clause was used the lessee continued to lease the equipment for extended periods of time simply because, if the lease never ended, and invoices continued to be sent, they were paid. Many lessees did not have an internal method of following termination dates, especially if they had numerous transactions. However, when the lessee learned of their mistake, tempers flared. This was usually solved by informing the lessee of the evergreen clause at commencement and their requirement to notify the lessor when they wanted to terminate.

Next we began to require a ninety day notice prior to termination with a mandatory evergreen clause if there was a failure to notify. Also the notice could not be submitted prior to six months from termination. In many cases the notice requirement was placed in the body of the lease and was usually undetected by the Lessee. When the lease terminated and the lessor informed the lessee that they failed to submit the ninety day notice and the lease would continue for another ninety days the lessees became disturbed. So, New York and Illinois began to put requirements on the lease document to make the notice requirement “conspicuous” or to give the lessee notice of their notice requirement. Many lessors, but not all, have begun to send notice of the notice requirements sixty days in advance of the notice date or are contacting the lessees directly.

Now we have many major lessors that have a wintergreen clause which is a mandatory twelve month extension if the lessee fails to give proper notice further irritating lessees.

Both the evergreen and the wintergreen clauses are another part of the differences between lessors and require professional lease salespersons to know the requirements of their competitors so as to properly present reasons to lease with them.

Terry Winders, CLP
Lease training and Consulting