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Equipment Leases: When Can You Get Out of Them?

What you need to know about contract law and how it applies to your leased office equipment

Q: Two years ago, my company leased a printer-which could not print on the cardstock the salesman said it could. We then leased a different printer from the same company, and payments were high because it essentially tacked on the remainder of the previous lease. The lease warned us about what would happen if we stopped payment. We have a year and a half left, at $839 a month, and no longer want the printer. Can we get out of the lease?

A: Although there's not a simple yes or no answer, your predicament is fairly common. Can you ditch this contract? It depends on whether:

Resource Guide
Get the lease you want with Negotiating Business Equipment Leases by Richard M. Contino.

Any contract terms are so unfair, it might allow you to cancel.
Promises made to you about the equipment were oral or written.
You backed up the company's lease with a personal guarantee.

First, a whirlwind lesson in contract law. Some contracts are voidable (can be cancelled). Situations include:

Illegality. If you signed a contract charging 49 percent annual interest on a loan, state and federal regulations would make it illegal (and unenforceable).
Blatant unfairness. If a deal is too one-sided, a court can refuse to enforce the contract, or can take out the offensive section (if possible) and enforce the rest.
Misrepresentation. Example: "This car, with side-impact protection, can hit a redwood at 100 mph, and no one will get hurt." A misrepresentation that persuades you to sign a contract is always suspect.
Significant mistake or misunderstanding.
Oral promises. Promises not included in a written agreement are usually disregarded.

The salesman goofed on the first printer, but substituted one that fit your needs. So misunderstandings related to the first printer were addressed.

Let's look at other defenses: Is your monthly payment exorbitant, compared to similar printers? If so, you might attack the contract on grounds of blatant unfairness.

Read your contract carefully. The Uniform Commercial Code (UCC), which governs most sales/leases of merchandise in the United States, includes a warranty guaranteeing that an item is fit for its intended purpose. If you can show that neither printer was up to the task, you might prevail. Caution: the seller/lessor can exclude this warranty.

It's going to be tough to get out of this, especially if you personally guaranteed the lease. I'd recommend these defensive measures:

Try negotiating a lower payment or shorter lease term.
If the lessor won't deal with you, get a mediator.
Hire a local business attorney to negotiate for you and check out your legal options.
Figure out whether there's any other ammunition (aside from not wanting to make the high monthly payment) that will allow you to get out of the lease.
If all else fails, finish the lease or find someone to take it over.

And in the future, before you lease or buy office equipment:

Closely read the contract. Ask questions if there's anything you don't understand.
Run the equipment through a dress rehearsal before you commit to it.
Check with your accountant or CFO to see whether leasing is the better option.
Shop around. Like prescription drugs, there's often a wide range of costs.
Unless you need this item for a long time (and it won't become obsolete), get the shortest lease term you can.


Joan E. Lisante is an attorney and freelance writer who lives in the Washington, DC, area. She writes consumer-related legal features for The Washington Post, the Plain Dealer, the Spokane Spokesman-Review and the Toledo Blade (Ohio). She is also a contributing editor to LawStreet.com and ConsumerAffairs.com.
In her practice, Lisante is counsel to ConsumerAffairs.com and was counsel for Zapnews, a fax-based customized news service for radio stations. Previously, she served as Assistant District Attorney in Queens County, New York, and Deputy District Attorney in Nassau County, New York.


The opinions expressed in this column are those of the author, not of Entrepreneur.com. All answers are intended to be general in nature, without regard to specific geographical areas or circumstances, and should only be relied upon after consulting an appropriate expert, such as an attorney or accountant.

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