April 25, 2024

Leasing and Financing Law Equipment

5 min read

Regardless of whether you work for a large law firm or your own private practice, you will need office equipment to operate efficiently. In addition to essential office machines, you will need supplies like envelopes and postage stampers.

Many firms opt to lease equipment. This is great for equipment that can become outdated in a few years, as the monthly payments are usually lower than purchasing.

Leasing

There are many different types of equipment leasing arrangements. A firm should understand the different options to find out which makes sense for them. For example, if the equipment is expected to retain value for several years, it might make more sense to finance it rather than lease it. This allows the firm to take advantage of tax depreciation deductions.

The lease agreement should also contain an indemnity provision. This protects the lessor if the firm’s actions, breaches or misrepresentations cause the loss of depreciation deductions for the equipment. Often, these indemnities are highly detailed and require significant negotiating. However, if the equipment is expensive or important for the firm, this may be worth the effort to fine-tune the terms of the lease.

At the end of the lease, the firm can choose to purchase the equipment at a predetermined price or return it to the company that leased it. This option is great for law firms that want to be sure they have access to the latest technology, since equipment upgrades can quickly drop older models in value.

Leasing typically requires a smaller down payment than a loan, and the monthly payments are usually lower. It’s a good option for a law firm that doesn’t have the cash to pay for a large upfront investment or if it wants to keep its financial resources focused on short- and long-term business goals.

Financing

If a firm cannot afford to pay for a large portion of new equipment upfront, leasing may be a good option. Leasing usually requires a lower down payment and can be much more cost-effective than obtaining a loan to purchase the equipment. It is important to carefully consider the repayment terms of any financing agreement, however. A shorter term could put a strain on a firm’s monthly cash flow, while a longer term could significantly increase the amount of interest paid over time.

Using financing to purchase equipment can also be beneficial if the equipment has a relatively high resale value and will retain its value for several years. In contrast to a lease, a loan will require a significant down payment, often 20 percent or more of the cost of the equipment. It is also important to examine a potential lender’s credit requirements, as they may require a personal guarantee or other security to secure the financing.

Our interdisciplinary team has broad experience supporting all types of equipment leasing and finance transactions, including private and public securitizations and the sale and purchase of individual equipment leases and loans, as well as the structuring of leveraged, single investor and synthetic lease transactions. We are closely involved with key industry trade organizations, allowing us to anticipate trends that impact the equipment finance industry.

Purchase

If a firm decides to purchase law equipment it is important to define what is being purchased. This includes a description of the item and its condition, where it will be located in the office, how and by whom it will be used and the warranty requirements. Material and equipment are considered goods under the Uniform Commercial Code, Article 2, therefore these types of transactions are governed by the same laws that govern the sale of goods in other business transactions.

This means that the firm cannot request a refund if they decide not to use the product or find that it is not what they are looking for. However, the firm will be able to depreciate the equipment and recoup some of its cost when the time comes to replace it.

Purchasing equipment also allows the firm to modify the equipment if required, which is not possible with leasing. Buying equipment also allows the firm to resolve issues more promptly because they are not bound by any limitations imposed by an equipment lessor.

It is advisable to search the Personal Property Securities Register before purchasing any equipment so that you know if it has been financed and therefore a debt collector can seek repossession if there is a default. In addition, it is prudent to plan ahead when purchasing equipment and to consider submitting a finance application well in advance of needing the equipment. This will help you secure a loan with a competitive interest rate.

Maintenance

The equipment that law enforcement uses, from firearms to body cameras, requires regular testing and maintenance to keep it in good working order. In many cases, this is a legal requirement under the terms of the equipment’s warranty. The best way to track this maintenance is through a preventative system that keeps the user on top of what is needed to be done. This can be difficult to accomplish with traditional methods, but an app that uses QR codes makes it easy.

The debtor will maintain each item of Equipment in good operating condition, ordinary wear and tear and immaterial impairments of value excepted, and provide all maintenance service and repairs necessary for such purpose (excepting where failure to so maintain Equipment could not reasonably be expected to have a Material Adverse Effect).

If equipment is damaged or breaks down, users should report it immediately so that the damage can be repaired. Without a reporting system in place, a piece of equipment may be left unattended for an extended period of time, potentially putting lives in danger.

The Debtor should make all reasonable efforts to ensure that each vehicle is equipped with an emergency light and siren when required for the performance of official duties. No unauthorized person may ride in any department vehicle, including police cars, unless authorized by the officer in charge of the unit.

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