Investing in equipment wisely can be the difference between a massively successful construction enterprise and a bankrupt business. In this four-part article, our Sarasota construction attorneys have discussed a few of the main options for construction firms when they are ready to invest in equipment, including buying or renting equipment. In this final section, a Sarasota construction attorney will discuss the advantages and drawbacks to leasing. To catch up on this series, please read parts one, two, and three.
Should I Lease Construction Equipment?
For construction firms that are cautious of investing significant capital into equipment, but want to avoid paying expensive daily, weekly, or monthly rates, the answer to their dilemma may be leasing. Leasing has many benefits because you’re not locked into an investment for the entire lifetime of the equipment. This way, when new and improved equipment hits the market, your business can upgrade. The terms of a lease can offer business owners some flexibility as well. With leasing, you can coordinate your payments to align with the ebb and flow of the payments coming into your business for completed work.
Although leasing is a nice compromise for construction firms that would prefer not to drop significant capital on a piece of equipment, some of the same drawbacks of renting also apply to leasing. Leasing equipment is still more expensive long-term than owning, and leasing agreements have significant penalties if the agreement is violated by the construction firm. An unexpected conflict could result in your business being stuck with a bill for a piece of equipment that’s not in service. Another issue occurs when equipment is allegedly damaged during a lease. Again, this is why it’s important to have one of our Sarasota construction lawyers review all your contracts. This includes agreements with owners, subcontractors, and vendors leasing equipment.
Most Common Types of Leasing Agreements
Generally, there are two common types of leasing agreements: operating leases and capital leases. If the agreement is an operating lease, the owner (called the lessor) allows the user (lessee) to use the equipment without any transfer of ownership. The lessor receives periodic payments in return for lending the equipment to the lessee. If the agreement is a capital lease, the lessor transfers ownership of the equipment to the lessee at the end of their agreement. This type of agreement is typically non-refundable, but the payments are more affordable than an operating lease.
Depending on what type of leasing agreement a construction firm enters into with a vendor, the contract can shift responsibilities related to insurance payments, maintenance and repair fees, and tax implications. This is another reason why a construction attorney should review all the agreements your business makes before signing a contract.
As we’ve discussed throughout this article, deciding whether to buy, rent, or lease construction equipment greatly depends on your business operations, the size and scope of the projects you are working on, and a variety of other considerations, including legal liabilities and tax implications. Fortunately, whatever route you think is best to take, an experienced construction lawyer can review your agreement and offer you valuable legal counsel to ensure your best interests are protected.
Disclaimer: The information contained in this article is for general educational information only. This information does not constitute legal advice, is not intended to constitute legal advice, nor should it be relied upon as legal advice for your specific factual pattern or situation.