Succeeding in the leasing world require lessors to guide against certain pitfalls while documenting their transactions. Some of these pitfalls include:
¨ Equity Contributions — The word equity connotes ownership. Therefore asking for equity contribution in a lease transaction no matter the percentage gives the lessee a proprietary interest in the leased asset and in the event of default, the lessor will not be able to repossess since the asset is deemed to belong to both parties. The same effects of taking equity contribution can still be achieved by asking the lessee to pay a number of rentals in advance. The advance rental technique in addition to protecting proprietary interest of the lessor will also protect against risk and increase the yield in the lease.
¨ Registering the leased asset in the name of both parties — This is common in vehicle leases. Again, this indicates joint ownership thus, negating the lessor’s exclusive title which will come to fore in the event of default and repossession. A way out is to give the lessee a supportive “to whom it may concern“ document on the leased asset and put a number to call when necessary.
¨ Purchase Option – while the intention of the parties in a finance lease is to have title passed to the lessee at the end of the lease period, expressing this as an option to purchase in the lease documentation automatically changes the transaction to hire purchase. The courts have always frowned at this in many purported lease agreements with purchase option. The lessor can still meet the intention of the lessee without violating the law, by inserting a clause in the lease agreement as to the disposal of the asset at the end of the lease in accordance with the Equipment Leasing Act.