Leasing Term # 16 – Automatic Renewal
Posted on January 20, 2010
Filed Under Business, Computers and IT, Financing, LeaseSpeak Dictionary, Leasing, Negotiation, Printing and Graphic Arts | 1 Comment
I Thought I Had One More Month!
Automatic Renewal is an end of lease option that automatically renews a lease for a few or for many months. If you fail to give written notice to the leasing company during the approved Notification Period, the lease renews at the same payment as during the original lease term.
An Automatic Extension is the same thing as the Automatic Renewal. Almost all leases contain an Automatic Extension provision
TIP: You should negotiate a reduced monthly renewal payment before the lease is initially signed. By doing so, even if you are trapped in an Automatic Renewal, at least the renewal payment will be less than during the initial lease term.
TIP: Your negotiation position is that the equipment renewal rent is worth less. The equipment is old and used. The renewal payment should be based on the market value of used equipment not on brand new equipment. If you don’t negotiate the future renewal payments before lease commencement, the renewal payment will not decrease.
TIP: Negotiate at least a 50% reduction in the renewal payment.
TIP: As soon as a lease commences, establish a lease tracking process to remind yourself when to give the leasing company notice to avoid automatic renewals.
REAL LIFE: A Midwestern based law firm assumed a large number of technology leases in a merger. The lease contract manager was sure she understood the notification requirements. She didn’t. The lease automatically renewed for one year totaling $85,000. She called and asked for help to negotiate with the leasing company. We looked for loopholes in the agreement, found one and saved the firm $27,000.
The notification requirement was one of the trickiest I have seen. The notification window was “no less than 90 days and no more than 120 days before the final lease payment.” As it turned out, the final lease payment was not the 36th payment, it was defined as the 35th payment.
Would you have caught this trick?
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