Gerry Egan on “Evergreen Leases”
(It should be noted that the complaint regarding the Evergreen lease is about the company salesman, who was admittedly paid a commission up front for the “evergreen payments,” and not a leasing broker. In the NorVergence lease scandal, the Days, Cybernet, AllServe, and those written about the last several years, none of them involved an independent leasing broker. Many also were not through leasing sales personnel, but via “management.”
In the NorVergence scam, perhaps the credit department would have been more strict and operations more diligent if a leasing broker were involved. Please read Gerry's opinion. editor)
Gerry Egan since 1981 has been involved in Equipment Leasing training, education, and has written many articles. He is unique in his consulting profession as " We broker leases, hold our own leases and discount leases to local banks in addition to managing and servicing the leasing programs for a couple of small banks."
I see two aspects to the issue. On one hand, if the evergreen clause is spelled out in the documentation, and most of the ones I'm familiar with are, then I generally take a 'caveat emptor' approach and say that it's up to the Lessee to know what it is they're signing. With that said, however, just because something is legal doesn't make it good business. The most egregious examples I've seen simply aren't good business.
I've lost leases in the past to companies with 'too-good-to-be-true' pricing only to have the customer approach me later when they were making their fifty-second payment on their thirty-six month lease. I never object to losing business on a competitive basis, it just makes me sharper and more determined to be better on the next proposal. What I object to in a situation like that, though, is it unnecessarily takes that customer out of the leasing marketplace forever. A customer like that inevitably feels 'taken advantage of' and whether or not the evergreen clauses were spelled out in the documents is irrelevant. The result is they won't lease again. That's bad business because it's unnecessary and shortsighted. That same customer could have been traded up to new equipment on a new lease and they'd feel they were getting a great benefit out of leasing while the Lessor would have made more money on a lifetime of repeat business. That, to me, would be better business.
In the fifteen-plus years I've had my own business, with very rare exceptions, virtually all of the leases I've written are within thirty-five miles of my desk and the leases I've managed for local banks are exclusively in their market 'footprints'. When you're apt to meet your customers regularly out in public; at the market, at the movies, at the mall, or at Chamber of Commerce events; when you know their brother, their barber, their broker, or their lawyer; you tend to become extremely careful in making sure they know exactly what they're signing before they sign it.
When I broker a lease to a funding source with strict evergreen terminology in their contract, I review that section carefully with the Lessee and ask them this question: What will you put in place to be sure you'll remember to terminate the lease on time in case I'm not around to remind you? On my own leases, I generally call the lessee three to six months before the lease is over and remind them that the reason they leased was to get the latest equipment working with the least possible cash tied up and the most flexibility of choices at the end of the initial term. Would you like to see what the latest equipment is right now before you decide what to do next? Please don't feel rushed, if you're not ready to commit either to buying what you've been leasing or to finding something new, I tell them, you can automatically keep this lease on a month-to-month basis for as long as you like.
More often than not, there's a new lease there for me when I handle it that way. At the very least, though, I feel I've been fair and I'm not afraid to meet them later. Before I began scaling this business back, we had a very high percentage of repeat customers with many having done over twenty leases with us. How I handle evergreen clauses isn't about what I can get away with legally in the fine print, it's about what makes good business sense.
Gerry Egan
President
TecSource, Inc.
5621 Departure Drive, Suite 113
Raleigh, NC 27616
Phone: 919-790-1266
Fax: 919-790-2262
E-Mail: mailto:GerryEgan@ForEquipmentLeasing.com
Internet: www.ForEquipmentLeasing.com
About Gerry Egan: http://www.realworldsalestraining.com/ |
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