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Equipment Financing and Leasing in Canada – How to negotiate a Successful end of lease strategy for your Asset Financings

Guest post by: Stan Prokop

Article Overview: The article reviews the rights and obligations of Canadian businesses at the end of a lease financing process and suggest proactive measures to maximize asset values and the rights of the business owner.

Equipment Financing and Leasing in Canada – How to negotiate a Successful end of lease strategy for your Asset Financings

Depending on the type of leases that Canadian business owners and financial managers have entered into is critical to have the information and skills to negotiate a successful end of lease strategy. The bottom line is very simple – you are at the end of your Canadian Equipment Lease financing – what now? What happens to this equipment and what are my rights and obligations...

The entire process should be viewed as a proactive process with your equipment financing lender. Some Canadian business owners may also choose to use the services of an experience, credible and successful lease financing intermediary to assist them with the process.

We have heard the expression ‘timing is everything ‘. That’s equally important in our scenario, as it is critical to start to evolve into discussions with your lessor at least a couple of months ( 90 days is recommended ) regarding final disposition and acquisition of the asset . Some equipment leases in certain areas of business may be in the many hundreds of thousands or millions of dollars – given these transactions are much more d complex we would recommend an even longer time period for start of negotiations.

So what are the Canadian lessee’s rights and obligations? That’s a simple answer – they are in the written lease contract your firm entered into with the lessor. That wording should be reviewed by you with respect to issues such as –

Can the lessor come to your premises to inspect the equipment?

Does your firm have to provide maintenance records?

What was the return or purchase provisions as documented in the lease transaction you signed?

We would also add that many equipment leases require you, the business owner, to notify the lessor of your intentions under the lease, and in some cases the lessor may also be bound to notify yourself as to final termination issues and procedures. The rights and obligations you have under the lease are neatly compacted into the following points – You can buy, return, renew or extend the lease, or surrender the asset.

By now business owners realize that the lease they entered into three or five years ago must clearly be reviewed again. Companies that do a lot of lease equipment financing are strongly recommended to have follow up and termination policies in place that will allow the lease to be reviewed as it comes to expiration.

Lets talk a bit about the ‘value ‘of the equipment, - This is somewhat of a tricky area and business owners are cautioned to investigate this one thoroughly. We can frankly compare our scenario to selling our homes – we think us as homeowners know what the price is worth, the realtor tells us their opinion, and, guess what, the market will ultimately decide what the home is worth. It’s not unlike your lease financing transaction, whether that financing was for computers, or plant machinery. Certain assets depreciate and lose value s very fast, some lose a portion of their value, and in a very small set of circumstances some assets hold their value and may in certain instances be worth more than you paid for. (Rare, but it happens!)

In summary, business owners are cautioned to ensure they understand the end of lease options rights and obligations. Follow up to the transaction should not be done at the last minute, and thorough investigation of asset value should be done with proper diligence. It’s only common sense.

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Article Tags: canada, canadian businesses, equipment financing, financings, leasing



Related Forum Posts
Re: Selling my business.... - Sounds like you're in a tough situation. First things first, you really need to get some clear answers from the landlord. If they're not willing to extend your lease, then you're obviously in a pickle. I would do everything I could to negotiate a new lease. If landlord is balking at renewing the lease, find out why; Is it because they're looking to increase rents? Have you had problems with them? Are they planning to remodel? The landlords answer may not be what you are expecting and could possibly be a simple hurdle for you. I would try and have a face to face meeting as well... you'll learn more from their body language and pleading your case is going to have more impact. Without an extension on your lease I can't imagine how you're going to convince a buyer to take over your business. [quote:cbrn6le2]When I sell my business, does my landlord have to resign with whoever my buyer is? [/quote:cbrn6le2] The answer is probably no.
Re: Selling my business.... - I think you're right about the lease Russ - unless there is an option to sublet in your current lease, it seems unlikely that the owner would be forced to renew the lease for a new person. Each landlord has the right to screen and refuse any unqualified tenant. Why not consider hiring someone to work or manager the store and get a change for yourself for at least a time or bring in a partner to share the work load and responsibilities. Shri
Need Help Growing? - One resource that I've found to be extremely helpful was calling the Business Development Bank of Canada (BDC). I've met a lot of top business owners who have used the BDC for various reasons (i.e. sales/marketing strategy, training, foreign development, etc) and all say it was a massive help. The BDC will usually help you create the strategy using industry specific consultants and then not only help you fund the consultant's work but also the strategy. Their loan terms are little higher than banks but they’re a lot more easy going and understanding than regular banks.
Franchisers approach for Negotiations - Jim makes a good point: each state is different in what it will allow as a post disclosure negotiation. My original point was to look at changes that could be systematic. Here is another example: most franchisers want to have the head lease, but don't really want the responsibility of being a tenant. They want the head lease so that they can easily take control of an errant franchisee. However, the franchise is left in no-man's land when trying to deal with the real landlord. The solution to this problem is for the franchise agreement to be changed so that the franchiser has an option assignment of the lease; the option is conditional upon a non-curable breach of the franchise agreement.
The Value of Mentoring - Successful mentor pairings (in case there was any doubt as to the value of mentoring): 1. André Ouellet (President, Canada Post) mentor to Mark Whalen (Urban Organics and winner, Young Entrepreneur Award) 2. Marc Lefrançois (President, Via Rail Canada) mentor to Jeffrey Campbell (Core Networks, Inc. and winner, Young Entrepreneur Award) 3. Donald Kendall (former CEO of PepsiCo) mentor to John Scully (former CEO of Apple) 4. Harland Sanders (the Colonel) mentor to Dave Thomas (founder of Wendy's) 5. Stuart Friend (KMart manager) mentor to Wayne Sales (CEO of Canadian Tire) 6. Jim Rohn (author, motivational speaker) mentor to Anthony Robbins (author, motivational speaker) 7. Robert Patterson (CEO, National Cash Register) mentor to Thomas Watson (founder of IBM) 8. Henri-Paul Rosseau (President, Laurentian Bank of Canada) mentor to isabel Rodriquez and Yves Besner (i4design and winners, Young Entrepreneur Award)


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