Good customer service is critical to the success of any business. It is all the more important in the rental industry because of referrals and repeat customers.
Establishing trustworthy relationships is a crucial aspect of good customer service.
Most businesses know this requires accurate product information, competitive pricing, and a well-designed webstore. What is often overlooked is drafting a comprehensive and transparent equipment rental agreement.
A robust equipment rental agreement builds trust in your business-customer relationship and safeguards your business against legal issues.
What is an equipment rental agreement?
An equipment rental contract or agreement is a legal contract between your rental business and your customers.
It outlines the rental terms and rates, parties involved, rights, and obligations between the two parties. A well-drafted agreement helps set clear terms, saving time, money, and value in case of a dispute.
The rental agreement lays out either party’s responsibilities and the terms to resolve a dispute, if and when applicable.
Any violation of a written rental agreement may result in legal fees for the offender.
A rental agreement is, therefore, the linchpin of an equipment rental transaction.
When to use an equipment rental agreement
Equipment rental contracts are crucial when the rented-out equipment is lost, damaged, or not returned on time by the customer.
The customers can rely on the agreement when your business rents out equipment that fails to function as advertised.
For an example of the importance of equipment rental contracts, let’s assume you are running a heavy equipment rental business. Let’s say you rented a piece of heavy machinery to a customer. Due to unforeseen circumstances at the customer’s end, it was damaged.
Now the question arises about who will cover the damage.
Situations like these need to be resolved smoothly and swiftly. Failure to do so can lead to a dissatisfied customer base and reputational damage for your business.
Such scenarios can be avoided by drafting a comprehensive machine rental agreement.
What to include in an equipment rental agreement
A clear and detailed equipment rental contract outlines all rental terms and creates transparency between your rental business and the renter.
The agreement should include the following:
1. Full and correct names
Your company should be listed as the lessor and your customer as the lessee.
The parties’ names must also include their contact information to determine the nature of the party.
The details should contain the complete name, address, and contact information, of the individual customer or the company.
Any minor inaccuracy, such as a misspelled name means they cannot be penalized in case of violations.
2. List the rented-out equipment
The equipment rental agreement should list all items rented out in the transaction.
This should also include the description and features of the rented items, quantity, price, and vendor name.
3. Rental duration terms
Every rental transaction is subject to an agreed-upon duration.
The dates on the agreement are fixed and the customer is obligated to return the equipment on the specified date.
If the customer wishes to rent out the equipment for more than the agreed date, then the agreement is renewed with the newly changed dates.
4. Rental rate
This section includes the amount of money a customer must pay in compensation for the rented equipment.
Depending on the type of equipment you rent out and your customer’s workflow, you can set the rental charges as hourly, daily, weekly, or monthly rates.
For example, if you rent out media equipment to university students, you may charge them by the hour.
If you rent construction equipment for long-term projects, you can set the rates as monthly or annual.
The agreement should also include any additional charges that will be applied such as taxes, charges for premium service or delivery, etc.
5. Late charges
Late rental returns are a common pain point for all rental businesses.
They can lead to lower inventory levels and lost business.
Prevent this by specifying a late fee in the rental agreement.
The late charges should be covered in the final payments.
6. Security deposit
A security deposit protects your business. It is typically charged as a fixed, upfront fee.
In case of damage, you can deduct without the amount, partially or fully, depending on the damage and whether it compensates for that loss.
The rental agreement must clearly state the security deposit amount and terms.
7. Equipment usage guidelines
The rental agreement should highlight the rules for correct usage and handling.
This includes key operating tips to ensure that customers use equipment properly.
Many regulatory bodies require certain items to be stored and used according to the stipulated standards.
This section on care instructions generally lays down these standards that need compliance by both parties during the storage and usage of rental equipment.
8. Repair and replacement
Conflicts can be avoided by highlighting repair and replacement clauses in case of damage.
Rental companies trust their customers to use rental equipment correctly.
If the customer causes damage during the rental period they are liable for any repair costs incurred.
9. Condition checklist
You may add a ‘condition checklist’ that your customers can use to evaluate the equipment’s condition before renting it out.
It will guarantee that your customers will hand over the items according to the acceptance checklist.
If the state of the returned equipment differs from the condition checklist, you can either charge the customer an extra fee or deduct the amount from the security deposit.
10. Loss and damage
The loss and damage section states the amount a customer will pay if they damage the rented equipment.
This is generally calculated by a decrease in the value of the equipment after the rental period.
It mostly pertains to damaged equipment that cannot be restored to its original functioning state.
11. Ownership rights
This section defines you (the lessor) as the rightful owner of your rental equipment.
It helps protect your rental equipment, machinery, vehicles, etc., against unlawful seizures and unauthorized use by the customer.
12. Insurance
Liability concerns for the lessor and renter can be reduced by insuring your rental equipment.
The insurance can cover loss or damage to equipment, property, or injuries to a person while using the equipment.
The insurance fee is built into the rental rate should the customer choose to purchase coverage.
13. Delivery terms
The agreement should also specify who will load and transfer the equipment at the start and end of the rental period.
The delivery terms and charges must be explicitly stated in the agreement. If you will be delivering, you can add fees to the rental rates.
14. Parties’ signatures
Both parties must understand the terms of the equipment rental agreement before signing it.
To ensure the agreement is followed, each party’s signature, name, date, and position must be filled in the signature blocks at the end.
E-signatures can be used to save time.
15. Indemnity clauses
In some cases, the renter may demand repayment or file a lawsuit against you for damages if your equipment malfunctions or an accident occurs during the rental period.
The terms of these payments might be detailed as indemnity clauses.
Since this clause is prone to manipulation, it is subject to complicated negotiation terms and is only exercised under extreme situations.
Keep your rental agreements up to date
Creating an equipment rental agreement is a big task.
As such, it’s important to make sure everything in the contract is up to date with current laws and regulations.
Laws about renting equipment can change often. A legal team or lawyer who knows about rental agreements can keep track of these changes for you.
In case of changes in legal requirements, you or your legal team can use a standard template as a starting point and then change parts of it as needed.
Ultimately, equipment rental agreements aren’t just about customer service or legality, it’s about protecting your business from avoidable losses.
