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How Companies Exploit Commencement Dates in Lease Agreements

In an equipment lease contract, the commencement date refers to the specific date on which the lease agreement officially begins and the lessee (the person or entity leasing the equipment) gains possession and the right to use the leased equipment. This date is important because it marks the start of the lease term, during which the lessee is responsible for fulfilling their obligations under the lease agreement, such as making lease payments and maintaining the equipment. The commencement date in an equipment lease contract can be used to exploit loopholes for extra payments or voiding or enforcing terms. It's essential for both lessors and lessees to be vigilant about this date to avoid potential pitfalls. Here are some tips to look out for with commencement dates in lease agreements:

  1. Clear Definition: Ensure that the commencement date is explicitly defined in the lease agreement. It should state whether it's based on the date of delivery, installation, or another specific event. Avoid vague language that can lead to disputes later.

  2. Delivery Confirmation: If the commencement date is tied to the equipment's delivery or installation, include a provision that requires the lessor to provide written confirmation of these events. This documentation can be vital in case of disputes.

  3. Early Possession: Be aware of any clauses that grant the lessee early possession or access to the equipment before the official commencement date. Determine whether any extra charges or responsibilities apply during this period.

  4. Delayed Commencement: If there's a possibility of delays in the equipment's availability, consider including provisions for adjusting the commencement date and the associated payment schedule. Ensure that the circumstances under which delays are acceptable are clearly defined.

  5. Rent-Free Period: In some cases, lessors may offer a rent-free or reduced-rent period at the beginning of the lease to incentivize lessees. Understand the terms and conditions of any such offer and be prepared for potential increases in payments after this period expires.

  6. Termination Rights: Determine the conditions under which either party can terminate the lease agreement before or shortly after the commencement date. Understand the associated costs and obligations if either party decides to terminate early.

  7. Grace Periods: Check for any grace periods related to the commencement date, especially regarding lease payments. Some leases may provide a short period of leniency for the lessee to make the first payment.

  8. Notification Requirements: Understand whether there are any requirements for the lessee to notify the lessor of the equipment's readiness or any issues with it. Failure to provide timely notice could impact the commencement date.

  9. Record Keeping: Keep records of all communications, documentation, and events related to the commencement date. This can serve as evidence in case of disputes or disagreements.

  10. Legal Review: It's advisable to have the lease agreement reviewed by legal counsel or a professional with expertise in contract law to ensure that the commencement date provisions are fair and in compliance with applicable laws.

  11. Negotiate and Clarify: If you have concerns or questions about the commencement date or any related clauses, discuss them with the lessor before signing the lease agreement. Negotiate any necessary changes to ensure both parties' interests are protected.

The commencement date should be stated clearly in the lease agreement and may be different from the date the lease agreement was signed. It is important for both parties (the lessor and lessee) to agree on and document this date accurately, as it determines when various aspects of the lease arrangement come into effect, including payment schedules, responsibilities for maintenance and repair, and the duration of the lease term.

Being vigilant and proactive in understanding and negotiating the commencement date provisions in an equipment lease agreement can help prevent misunderstandings, disputes, and potential financial pitfalls down the road. Already have a lease contract? Use our lease cost analyzer at no cost for an agreement analysis to review and potentially reveal overcharges, unjust fees, impossible conditions, onerous clauses, and automatic extensions. Contact today to get started!


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