Buy Option Denies Damages

A fiveyear equipment lease stated that a company had the option to either return the equipment or buy it for fair market value at the end of the lease. Two years into a lease a company returned their equipment and stopped making payments. A damages clause in the lease agreement said the company owed the remaining lease payments minus the proceeds of any sale of the equipment. The leasing company claimed as additional damages the fair market value of the equipment added to the remaining lease payments. The court denied that claim, saying the agreement failed to provide for such a result.

Why This Is Important . . .

The damages provision differed from the standard outcome at the lease s expiration. When the lease expired, the lessor would have gotten the equipment back and sold it, making more money. To gain the lease s full benefit, carefully draft your agreement s default and remedy sections to provide the desired result.