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Many years ago, I signed up to play golf in a charity tournament. It was a good cause and I loved to play so I sent in my donation and blocked out the day on my calendar. The day of the tournament I showed up and found I was playing in a group of men, most of whom I didn’t know. They seemed like a typical group of small business owners and managers and I was more than ready to enjoy the day.

I don’t remember the exact format but it was a two-man team game I was paired with a big guy, maybe 6’4” and I was hoping for a few monstrous drives. We played a few holes, telling a few jokes, cheering for each other good naturedly and creating an overall feeling of camaraderie. He liked my putting and I loved his drives.

Eventually, we got around to the obligatory “where are you from?”, “what do you do?”, “what’s your handicap?” and so on. When I told him that I was in the equipment leasing business his smile disappeared and was replaced by a distinctly sour expression. It was as though I said.,..,.,”your baby is ugly”. The light banter that had been present during the first few holes also disappeared. I was more than a little put off by this abrupt change in his attitude so after a few holes I asked what had caused it. I’ve never been very shy. After a thoughtful moment, he let out a sigh and explained that he had just had a particularly frustrating and expensive experience with a commercial equipment leasing company and simply the thought of that experience put a dark cloud over his head. He realized he was being kind of foolish (his words not mine) and apologized. We dropped the subject without further discussion and had a pretty nice time thereafter. We both played well and had a very enjoyable round of golf.

Later that day we met for a drink at the hotel bar and proceeded to talk about our game and how we had ‘ham and egged it’ to tie for first place. We talked baseball, basketball and eventually…….equipment leasing. It turned out that he had leased a telephone system a few years earlier from a company that I was all too familiar with. He made all of his payments timely, sent in his property tax when due, and did those things he was required to do under the agreement. When he mailed in his final lease payment he included a nice little letter asking what he needed to do to exercise his option to buy the equipment. He had always intended to purchase the equipment and in fact had negotiated to do so before he ever signed his contract. The negotiated price was $1.00, commonly referred to as a “bargain option”, and was evidenced by a letter signed by the General Manager of the leasing company.

After a week without a reply to his letter he called the leasing company and was referred to a residual clerk. He had barely finished telling the clerk why he was calling when the clerk rattled off what sounded like a much practiced response. In essence and much to his astonishment, he found that he had forfeited his option because he hadn’t advised the leasing company of his intention to exercise the option within the timeframe detailed in the agreement small print. The clerk proceeded to quote him three separate paragraphs in the lease documentation located in three separate Sections of the Lease. Sure enough when read together and with the vocabulary of a lawyer these three paragraphs required him to send a certified letter not more than six months and not less than five months prior to the expiration of the lease term advising of his desire and intention to actually buy the equipment for $1.00. To add insult to injury, the clerk advised him that because he hadn’t complied with this requirement, the lease had automatically renewed and that he was now responsible for twelve more payments than he had originally agreed to. This is commonly referred to as an ‘evergreen clause’. The story went on to describe several failed attempts to speak with the leasing salesperson he originally negotiated with (who, he found out later, no longer worked at that company), several failed attempts to speak with the General Manager (who, he found out later also no longer worked for that company) and several calls to the principals of the business, who simply would never come to the phone. It continued with letters, lawyers, credit reporting problems and finally a lawsuit …. which he, unfortunately lost. The final tally was, instead of paying $1.00 for a telephone system that he had actually already paid for, my new golf friend paid $11,000 in additional or extended rentals, approximately $600 in late fees, in excess of $3000 in legal fees and untold hours of wasted time and effort…..and a boatload of aggravation. Not a pretty story and unfortunately not an uncommon one.

I was curious why this fellow chose to do business with that particular leasing company in the first place. Since I’ve been in this business for a very long time I was pretty sure I knew the answer, but I asked it anyhow. The answer as expected was that “They had the lowest rate”. Apparently not in the long run.

I bought the guy another drink and we talked ‘golf’ for the rest of the evening.

NOTE: This story is far more common than most business people might expect. There are a number of leasing companies that simply stated, operate by a different set of rules than most and that have an entirely different objective than initially apparent. Before you sign on the dotted line and before you send any company a fee or deposit, make sure that you know exactly what you are agreeing to, exactly what the repayment terms are, exactly what your responsibilities are, exactly what you are, and perhaps most importantly, exactly whom you are dealing with. Then you can concentrate on really important things……. like your golf game.

About Charter Capital

Charter Capital is a family owned and operated commercial finance broker. Since 1977 we have been providing businesses just like yours with equipment and technology leases and loans that are right for their specific financing needs. Nothing we do is standard.