Rental businesses face a myriad of challenges today. They not only have to contend with the cut-throat competition but also have to deal with a variety of customers. Many of these do not take ownership of the rental items and use them carelessly. This often damages your rental fleet and raises your inventory maintenance costs.
When you inquire Customers about recklessly using your rental equipment, they often tend to disagree. This bleeds into conflicts and arguments with your customers. It reflects poorly on your customer relationship management and results in a disgruntled customer base.
To prevent strained relations with your Customers, it is key to make certain terms clear by drafting an equipment rental agreement.
Equipment Rental Agreement
Equipment rental agreement acts as a legally binding contract between you (lessor) and the customers (lessee) you’re renting your equipment to. It specifies the rights and responsibilities of each party.
It also stipulates terms such as the rental duration, rental rates, and instructions on using and returning the equipment. Listing these terms in a rental agreement makes sure you and your Customers are on the same page when it comes to handling equipment.
Furthermore, this ensures the operational longevity of your rental fleet and makes your Customer accountable for using the equipment in a responsible manner.
You can also choose to include additional terms in a rental agreement. Let’s say a Customer damages your equipment during use, you can charge them with damage costs or transfer the onus of service on them.
Violating any clause of a formal rental agreement may result in insurmountable legal costs for the violating party. A rental agreement is, therefore, the linchpin of an equipment rental transaction.
Essentials: What to include in a well-drafted equipment rental agreement?
It is imperative to include relevant details in a rental contract so disagreements do not arise between the two parties later.
We have shortlisted 15 essential things you must include while drafting a rental agreement with your Customer.
1. Name of the parties
No contract exists unless there are two or more parties agreeing to it. An equipment rental agreement should specify your business’s name as the lessor and your customer’s name as the lessee. This highlights which parties are responsible for maintaining the terms of the agreement.
2. Equipment subject to rent
This section lists down the items rented out in a transaction. It generally includes the description or features of the rental items such as the Asset Name, Asset Identification Number, Manufacturer’s Name etcetera.
3. Term of rental duration
Every rental transaction is subject to an agreed-on rental duration. This consists of the period from when a piece of equipment is rented out to a Customer to when it must be returned by the Customer.
It is specifically important to mention the return date in an agreement, so a Customer knows when to give back the items and avoid any late penalties.
4. Rental rate
This section includes the amount of money a Customer (lessee) must pay in compensation for the rented equipment. You can choose to charge your Customer on an hourly, daily, weekly or monthly basis depending on the kind of equipment you rent out and the workflow of your Customer.
For instance, if you rent out media equipment to university students, you may charge them on an hourly basis. However, if you rent out construction equipment for long-term projects, you may charge a rental fee on a monthly or annual basis.
It also helps to specify additional charges a Customer must pay. These may include applicable taxes, charges for premium service or delivery etcetera.
5. Late charges
Often times, your Customers return the equipment later than the specified return date. This may lower your inventory levels and negatively impact your future Orders. You can prevent this from happening by specifying a late fine that Customers need to pay for returning the equipment late.
Ideally, late charges should incorporate any opportunity cost you incur by forgoing future Orders of equipment that wasn’t returned in due time.
6. Security deposit
This section is contingent on the value of your rental equipment. If you’re renting out high ticket items, you need to make sure you’re reserving it for surefire Customers.
Charging a security deposit ensures your Customers do not back out from renting the equipment later on. You may even choose to use the security deposit to cover for fixed costs of getting the rental transaction arranged.
7. Usage guidelines
This part of a rental agreement outlines usage guidelines on how to operate the rented equipment. It may cover some key operating tips from User manuals of the rental items to ensure that Customers use your equipment in the right manner.
You can also choose to mention which individuals are authorized to use the rented equipment.
8. Care instructions
Many regulatory authorities require certain items to be stored and used according to the standards they have stipulated. This section on care instructions generally lays down these standards that need compliance by both the parties during the storage of rental equipment.
9. Repair and replacements
If rental equipment malfunctions during the rental duration due to the carelessness of a Customer, he/she must pay for any repair costs. There are also times when a part needs significant replacement to restore the equipment to its functional state.
In this case, they should first get your consent and then proceed with getting the requisite items replaced.
10. Condition checklist
This section specifies the working condition in which the items were rented out to the Customer. It is imperative for your Customers to return the rented equipment in the same condition in which they received them.
You may opt to include a ‘condition checklist’ that your Customers can tally. This ensures that your Customers are handing over the items in their initial working condition.
11. Return of Equipment
If the condition of the returned equipment deviates from the condition checklist detailed above, you can ask the Customer to either pay for repair and replacements costs or provide with an identical item that meets the condition checklist criteria.
12. Loss and damage
This element of a rental agreement details the amount a Customer is supposed to pay if he/she damages the equipment during its use. This is generally calculated by a decrease in the value of the equipment after the rental period. It pertains to damaged equipment that cannot be restored to its original functioning state.
This is perhaps the most important part of an agreement. It defines you ( lessor) as the rightful owner of your rental equipment. This helps protects your rental fleet against unlawful seizures and unauthorized use by the Customer.
It also specifies any attached liens in case your Customers fail to discharge the afore-mentioned obligations related to your equipment.
This clause allows for you (lessor) to pay indemnity compensation on your Customer’s behalf. If your Customer damages the rented equipment and is financially unable to pay for the damage charges, you can pay for the losses caused by them.
Since this clause is prone to manipulation by Customers, it is subject to complicated negotiation terms and is only exercised under extreme situations.
You can reduce the liability of both your business and your Customers by insuring your rental equipment. It protects your Customers from hefty damage charges and relieves you from paying the indemnity compensation discussed above.
A good rental agreement policy can make or break your business
Maintaining harmonious relations with your Customers can be rough terrain. Well-drafted rental agreements help you sail smoothly through it. They encompass key terms of your rental transactions so you do not have to argue with your customers over these in the future.
Violation of a single clause of an agreement by either of the parties can make or break your legal standing in the market. Therefore, equipment rental agreements are a necessary component when it comes to running your daily equipment rentals.
Read More: 25 Key Rental Business Lessons for Owners
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