Leasing farm equipment, rather than buying it, may be appropriate when the equipment is only needed for a short period of time or if the value of the equipment will be low after the intended use or if the farmer is limited by income or funds.
The following terms are what should be included in the lease for lease of farm equipment:
- Parties: Names and contact information for both parties should be listed in the agreement.
- Description of Machinery: The agreement should provide a description of the machinery, including type, make, model, size, condition of machinery, approximate value, and serial number.
- Rental Terms: This includes the rental period, the price for the rent, how and when payment should be made, requirement for a security deposit, who is responsible for payment of operation costs of the equipment (i.e., fuels, lubricants) and the allowed uses for the equipment.
- Repairs: The lease should explicitly state which party will be responsible for which repairs, including responsibility of notifying the owner in the event of major damage to the equipment.
- Insurance: The agreement should state whether the lessee will be required to carry personal and/or business liability insurance that will compensate for any actions committed while using the equipment. Owner may also wish to include an indemnification clause to be protected from liability of actions committed by lessee while using their equipment.
- Dispute Resolution: Agreement should state whether mediation or arbitration shall be used to resolve disputes arising from the agreement.
Other considerations to determine when leasing farm equipment is whether signing a lease-to-own contract is an option. This type of contract allows the lessee to purchase the equipment at the end of the lease. These types of contracts may be tax implications, which should be discussed with a tax expert before agreeing to this type of agreement.
Rincker Law, PLLC is prepared to help determine the right terms of a farm equipment lease that suit your needs.
Want more information on contracts for the food and agriculture industry? Check out my first book that I co-authored with Pat Dillon, an Iowa agriculture lawyer titled “Field Manual: Legal Guide for New York Farmers and Food Entrepreneurs” available on CreateSpace, Amazon, Kindle and iBooks. You can find out more about this book here. Furthermore, you can check out this extensive outline on common agriculture contracts on my JD Supra page prepared for this Lawline.com presentation.