Equipment Lease Agreement Red Flags: Six Clauses to Check Before You Sign
This page is general information, not legal advice.
An equipment lease agreement lets a business use equipment, such as a copier, medical device, restaurant kitchen equipment, point-of-sale system or work vehicle, in exchange for regular payments, without buying it outright. For a small business or freelancer, the monthly payment can look manageable, so the rest of the form gets little attention. But equipment leases are often commercial agreements with fewer consumer protections, and the terms usually favor the leasing company. This page covers six clauses that often move cost and risk onto the business. For each one you get an illustrative example, why it matters, and wording you can propose. Commercial and leasing rules vary by jurisdiction, and lessors and dealers will often negotiate before you sign.
This page is about leasing goods for a business, not leasing premises or a personal car. For office or retail space, see commercial lease red flags. For a consumer vehicle, see car lease agreement red flags.
The example clauses below are illustrative. They are not taken from any real leasing company's agreement.
1. You pay no matter what happens to the equipment
A typical clause might read: "Lessee's obligation to pay all Rent is absolute and unconditional and is not subject to any abatement, set-off, defense or counterclaim for any reason, including any defect in, damage to or failure of the Equipment or any failure by the Supplier to deliver, install or service it."
Why it works against you
Often called a "hell or high water" clause, this means payments continue even if the equipment arrives late, never works properly or is destroyed. Your complaint may have to go to the dealer or manufacturer, while the lessor keeps collecting. This structure is common in finance leases, and it can be enforced strictly in some places, so test the equipment before you sign the acceptance certificate.
What to ask for instead
Sample wording to propose: "Rent begins only after Lessee signs a delivery and acceptance certificate confirming the Equipment has been installed and is working as specified. If the Equipment fails to perform as specified within [number] days of acceptance and the Supplier does not fix it within [number] days, Lessee may return it and this Lease will end without further payment."
2. Unclear end-of-term options and automatic renewal
A typical clause might read: "At the end of the Term, Lessee may purchase the Equipment at its fair market value as determined by Lessor, or return it at Lessee's expense. Unless Lessee gives written notice at least ninety (90) days but not more than one hundred twenty (120) days before the end of the Term, this Lease renews automatically for successive twelve-month periods at the same Rent."
Why it works against you
"Fair market value as determined by Lessor" can turn into a large purchase price you didn't plan for. A narrow notice window is easy to miss, and missing it can mean another full year of payments for old equipment. Some leases also include a large final "balloon" payment. See auto-renewal clauses explained and notice clauses explained.
What to ask for instead
Sample wording to propose: "At the end of the Term, Lessee may purchase the Equipment for [amount / $1], return it, or renew month-to-month. Lessor will give written notice of the end of the Term at least [number] days in advance. If Lessee does not respond, the Lease continues month-to-month and Lessee may end it on [30] days' notice."
3. Ending early still costs every remaining payment and more
A typical clause might read: "Lessee may not cancel this Lease. If this Lease is terminated early for any reason, Lessee shall immediately pay all remaining Rent for the Term, plus the anticipated residual value of the Equipment, plus a termination fee of [amount]."
Why it works against you
If your business closes, moves or no longer needs the equipment, you may owe every remaining payment at once, plus the equipment's expected end value and a fee, often without any discount for getting paid early. If the lessor also takes the equipment back and resells it, you may not get credit for that. See early termination fee clauses explained and acceleration clauses explained.
What to ask for instead
Sample wording to propose: "Lessee may end this Lease early by paying remaining Rent discounted to present value at [percentage] per year, less net proceeds Lessor receives from re-leasing or selling the returned Equipment. No other termination fee applies."
4. "As is" equipment, with all costs on you
A typical clause might read: "Lessor leases the Equipment AS IS and makes no warranty, express or implied, including merchantability or fitness for a particular purpose. Lessee shall at its own cost maintain, repair, insure and pay all taxes on the Equipment."
Why it works against you
The leasing company may never have touched the equipment, so it disclaims responsibility for whether it works. You pay for repairs, insurance and taxes on property you don't own. Any manufacturer warranty may be hard to use if the lease doesn't pass those rights to you. Consumer warranty protections often don't apply to business leases. See warranty disclaimer clauses explained, limitation of liability clauses explained and insurance requirements clauses explained.
What to ask for instead
Sample wording to propose: "Lessor assigns to Lessee, for the Term, all warranties and service rights it receives from the Supplier or manufacturer and will cooperate with Lessee in enforcing them. Any service contract bundled into the Rent is listed in Schedule [X] and ends if the service provider stops performing."
5. A personal guarantee and cross-default
A typical clause might read: "The undersigned personally and unconditionally guarantees all obligations of Lessee. A default by Lessee under this Lease or any other agreement with Lessor or its affiliates is a default under all such agreements."
Why it works against you
Even if your business is a separate company, a personal guarantee can make you personally liable for the remaining payments. Cross-default means a missed payment on one lease, or a dispute over one machine, can trigger defaults across every agreement you have with that lessor and its affiliates. See personal guarantee clauses explained.
What to ask for instead
Sample wording to propose: "The personal guarantee is limited to [amount or number of months' Rent] and ends after Lessee has made [number] on-time payments. A default under this Lease does not cause a default under any other agreement unless it continues for [30] days after written notice."
6. One-way assignment and vague return fees
A typical clause might read: "Lessor may sell or assign this Lease without notice to Lessee. Lessee may not assign, sublease or move the Equipment without Lessor's prior written consent. On return, Lessee shall pay for any excess wear, usage above the allowance and costs to restore the Equipment to Lessor's return standards."
Why it works against you
Your lease may be sold to a finance company you've never dealt with, which may hold you to every term while giving no help with service. Meanwhile you can't sell your business or move locations easily without consent. Vague "return standards," excess-usage charges, such as per-page copier fees, and shipping or de-installation costs can add a surprise bill at the end. See assignment clauses explained.
What to ask for instead
Sample wording to propose: "Lessor will notify Lessee of any assignment, and the assignee takes subject to Lessee's rights and defenses under this Lease. Lessor will not unreasonably withhold consent to an assignment to a buyer of Lessee's business. Usage allowances, excess charges and return condition standards are set out in Schedule [X], and normal wear and tear is not chargeable."
Also worth a look
Check whether the lessor can raise payments for taxes, fees or "administrative" charges (see automatic price increase clauses explained), what late fees apply (see late payment fee clauses explained), and whether disputes go to arbitration or a distant court (see governing law and jurisdiction clauses explained). If software comes with the equipment, see software license agreement red flags.
Scan your own agreement free
An equipment lease can keep charging your business long after the equipment stops being useful. Upload your agreement to the ScanMyTerms lease agreement checker as a PDF, DOCX, TXT or MD file, photograph it (up to 30 pages), or paste the terms. In about a minute you get a list of clauses that work against you, with the risk level, the exact wording, why it hurts and how to change it. The free preview shows the risk count and the first two findings. The full report is $5 per document.
This page is general information, not legal advice. Commercial leasing, warranty and guarantee rules vary by jurisdiction, so for decisions about a specific contract, talk to a qualified lawyer where you live.
Sources
- All clause examples on this page are illustrative and written for this guide. They are not quoted from any real leasing company's agreement.
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