The factors to consider in hire or lease contracts can vary depending on whatever it is that you intend to hire or lease and whether or not you are better of just purchasing the thing itself.
A hire or lease contract is the kind of contract that gives you possession over something and the ability to use it without owning it or basically without enjoying rights that come with ownership of the particular thing.
Acquiring the use of assets does not necessarily mean that you have to purchase the given asset. Often there is also the option of hiring or leasing them.
The process of forming a contract for hire is the same as that for a contract for sale.
There must still be an offer, acceptance, consideration, intention and capacity to contract, in order to be legally bound. But there are factors to consider in hire or lease contracts. Which are these factors?
FACTORS TO CONSIDER IN HIRE OR LEASE CONTRACTS
Which one is better, hire/lease or just buying?
You have to look at the economic reality surrounding the acquisition of the asset. Supposing the asset is quite expensive and yet it will only be used periodically, it is more cost effective to hire (e.g., agricultural harvesters which cost thousands of dollars but are only used for a few days each year). Payment of regular monthly amounts might be preferable from a budgeting perspective to a single capital outlay.
If this option is taken, you still have to consider the total cost of having the machine.
Should you hire the asset or contract for the service?
Going with the farming example hence the harvester machine, the other question you should be seeking an answer to is whether you should actually hire the harvesting equipment or would it make more economic sense if you just contract for the service, for instance, equipment, driver, delivery to specified storage point.
What kind of risks transfers to you?
While hire and lease contracts do not give you ownership of the asset, this does not mean that you get to possess the asset risk free. There is going to be some transfer of risk in the contract and you need to know which kind of risks these are.
The contract must be clear on which risks do transfer to the hirer and which remain with the owner (e.g., it is normal that the hirer will be required to insure the asset).
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How is Maintenance going to take place?
All equipment requires some form of servicing or maintenance, how regular this is will depend on the equipment itself. The hire contract may make provision for this to be part of the hire package, as is often the case with company vehicles.
Equally, there may be a separate contract for servicing and maintenance with the owners of the equipment, you see this a lot with office equipment such as photocopiers and printers. At time you may just settle for having a different firm handle the servicing, it mostly just comes down to the actual cost of doing it.
When comparing offers of contracts for hire and lease of assets, it is important to understand what is included in each offer to ensure you are comparing like with like.
Is it possible to extend the scope of the contract if so, how?
Consider a contract for the hire of multi-functional devices, say, a printer, copier and scanner.
When the contract was put in place there might have been a need for eight machines in various offices, but then the company decides open a new office and require another two machines.
The hire contract needs to set out not only whether it is possible to add these new machines to the existing contract, but also what happens to the period of hire if that happens.
The first part of this issue is normally clear, but the risks associated with the second can be overlooked.
What if you want to reduce the scope of the contract?
Rather than opening another office, and having to hire print Machines, you may decide to close one office and therefore need fewer machines. The contract needs to make provision for early return or disposal of those no longer needed.