View Full Version : Lease vs Buy
12-29-2011, 03:53 PM
I recently took over the management of two Rental Contracts and the general understanding is that rental items are intended to be used less than 1 yr.
However recently several of my release have been extended and the material has been on rent for multiple years, when I look at the market price by the end of the contract we usually paid more in rent than had we purchased the material originally. The argument I run into is that when we rented it we intended it to be short term and therefore we could not justify the funds to procure the material.
That being said is there a way when working with a rental firm to purchase their material after so many "months/years" where the rental cost has exceeded the purchase price? If so how would you enforce that in the contract?
12-29-2011, 09:52 PM
We've had a simlar problem many times. The best you can hope for is to request and negotiate a lease with purchase option contract. We've tried several different configurations, but the one that seems to be easiest to seel to a vendor is requesting both a rental rate and a purchase price. Then negotiating a percentage of the rental rate that will apply to a purchase.
01-26-2012, 02:12 PM
The lease/buy decision has to be more than money. I have had Vice Presidents say they would rent water if they could. You may pay more than it is worth, but at the end of the project do you have a plan for what you will do with it, or is it going to turn into a dormant asset. How difficult will it be to dispose of when you no longer need it? How difficult/expensive is maintaining the asset?
Take for example temporary office trailers. For short term needs the dealers would prefer to lease, but long term they would prefer you end up owning it, because the market for older used units is saturated. They get the asset off their books and tranfer the headache to you.
Also don't forget your customer if you are working in a cost reimbusible contract. Your client may wish to purchase the asset, as opposed to rent it. If you are working in a Federal environment, you will probably have direction in this area.
All in all, not a simple, one size fits all situation.
01-26-2012, 02:29 PM
Excellent comments on this dilemma. I too have similar issues regarding items I have to rent for our firm since we do not need the asset. Situation involves generators. One of our facilities is in no-man’s land whereby the electric company is unable to provide enough power. We are on year two of a rental agreement for several generators until the electric company can supply sufficient power. This may be 2014 or longer. The original rental was 12 months, but 30 months later it became apparent this won’t work. I was successful in negotiating a declining rate every six months since a) we have paid for the generators, almost twice, b) the rental firm will scrap these units once we finish with them and c) the rental firm’s fixed costs are less and less as these units age. Something that may help…
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