Equipment Lease Disputes

Litigation Attorneys Serving Businesses in New York and Beyond

Most companies have some equipment needs that they meet through leasing, rather than purchase. Equipment leasing allows the company that is leasing the equipment to spread out costs over a longer period of time. Not all companies are aware of what to look for when structuring and negotiating a lease agreement, however. Often, they are willing to sign leases without reading them, or understanding the provisions contained within. Similarly, suppliers may rely on templates that may not quite work for a certain agreement. As a result, equipment lease disputes in New York or elsewhere are not uncommon. The litigation lawyers at Klapper & Fass have experience helping companies handle these matters.

Conflicts over Equipment Leases

Some common issues that arise with regard to equipment lease disputes are the term of the lease, the timing of rental payments, who pays the sales and use taxes, the number of hours of operation of the machine, the responsibility for repairs, what "ordinary wear and tear" includes, insurance coverage, transportation costs, warranties, and who will set up the equipment. Disputes related to lease terms are usually governed by the plain language of the lease. However, if the lessor and lessee are in different states and the lease language is ambiguous, the governing law for the lease should be specified in the lease.

In many cases, the lease will include a provision for dispute resolution, such as mediation or arbitration. Often, the parties will be required to submit their dispute to mediation or arbitration before proceeding to formal litigation.

If your lease specifies New York as the venue in which litigation may be brought, Article 2A of the Uniform Commercial Code (UCC) may apply to it. Article 2A, which deals with goods, applies to transactions that create a lease irrespective of the form of the lease.

Many businesses must use one of many different forms of lease financing to obtain capital equipment. When lease financing is used, there are three parties: the equipment supplier, the lessee, and the lessor. The lessee is the business that chooses the equipment and may need to negotiate modifications. The lessor purchases the equipment and leases it to the lessee in what is something considered functionally the same as an extension of credit. One type of lease financing is a "finance lease," which is defined by Article 2A.

Some people use the term "finance lease" casually to mean an arrangement that is actually a loan from the lessor to the lessee, in which the leased property serves as collateral for a loan. However, under the UCC, a finance lease is considered a true lease. It consists of a three-party transaction in which the lessor does not choose, manufacture, or supply the equipment, the lessor did not own the goods before the lease was arranged, and the lessee either approves the purchase contract or obtains warranty information before signing the agreement to lease.

Article 2A provides the lessor in a finance lease with special protections. For example, under §2A-407, a lessee's obligations to pay the lessor are irrevocable and independent of either the lessor or supplier's obligations. This is known as a "hell or high water provision," and it means that if you accept equipment under a finance lease that is not a consumer lease, you are obligated to make payments to the lessor under that lease even if the equipment proves to be defective.

A primary question in equipment lease disputes that revolve around this issue is which party bears the benefits and burdens of owning an asset. If a transaction that is titled a "lease" actually places the benefits and burdens of ownership on the entity leasing the equipment, a reviewing court must characterize the transaction as a loan rather than a lease, and the leased equipment must be classified as security for the loan.

Consult a New York Lawyer to Discuss Your Business Dispute

There is some risk in not obtaining legal counsel to negotiate equipment leases. The New York attorneys at Klapper & Fass can help protect your interests in any business dispute. We maintain offices in Manhattan and White Plains, from which we serve all five boroughs of New York City. We also provide legal guidance to businesses in areas such as Dutchess, Westchester, Orange, Rockland, Nassau, and Suffolk Counties, and we assist clients in other states throughout the U.S., including California and Michigan. Contact our office at 914.287.6466 or via our online form.