Lease contract for kitchen equipment help

[lyka]

Hello,
based in London.
I am about to sign a lease contract for kitchen equipment where the finance company purchases the equipment and leases them back to me for a period of 24 months.

My questions is: will the title of the equipment become mine after 24 months?

And
After 24 months I will have paid 1.3x the purchase price? Is that normal interest rate for finance companies? are the charges that high? paying 30% extra after 2 years of leasing?

 

[Scalloway]

What does the contract say about ownership?

It's a while since I dealt with anyone who leased kitchen equipment but the interest rate doesn't seem outrageous to me.

 

[Chris Ashdown]

Leases normally state that for a extra payment of £x then the ownership belongs to you. if its not stated then assume it still belongs to them and you have to return it

If its say returned after two years the depreciation would be at least 30% on many assets, some cars loose that when driven out of the showroom

 

[Bainzee]

lease is generally not worked out as a %, its on a rate per thousand. Normally a leasing agreement never entitles you to own the asset/equipment, the leasing company does. At the end of the term, you have the option of returning the equipment, negotiate a final price if you still want it or enter into a new agreement for brand new and up to date equipment.
Hire purchase agreement as alternative product allows you to purchase the equipment at the end of the term and this is agreed at the start.

 

[obscure]

Normally a leasing agreement never entitles you to own the asset/equipment, the leasing company does. At the end of the term, you have the option of returning the equipment, negotiate a final price if you still want it or enter into a new agreement for brand new and up to date equipment.
Hire purchase agreement as alternative product allows you to purchase the equipment at the end of the term and this is agreed at the start.

^ this ^
The key word is Lease, the definition of which is - a contract by which one party conveys land, property, services, etc. to another for a specified time,

 

[The Byre]

Kitchen equipment can be a minefield of deception and false promises. Read the leasing agreement closely. It's a bit like the music biz or the movies - lots of blue-eyed hopefulls wander in, dreaming the dream, only to be sucked in and blown out in bubbles!

Asking on a forum what usually happens really does not cover the fly-boys who do not even set a delivery date in the contract and/or you pay a finance company for old, faulty and knocked-out rubbish.

One acquaintance of ours did one of these lease-back deals with a major supplier and ended up paying a lease for stuff that arrived three months later. He had to cover that period with rental equipment. Also, strike out any deal that involves calculating some magic 'tax relief' into the price - that is for you and your accountant and not the equipment vendor to deal with!

When equipping a restaurant, ALWAYS get a seasoned professional restauranteur to advise you.

 

[Mark T Jones]

The. Answer to this will lie in the contract, also if the lender/broker gas any integrity they will give you a straight answer to the question

However, the likelihood is that you are signing a minimum term lease, which means that at the end of the primary term you can return the equipment or continue paying. You need to talk to the lender/broker about your options

Regarding rate, I'm assuming you are a start up or relatively new business, in which case the rate seems about right

 

[lyka]

The. Answer to this will lie in the contract, also if the lender/broker gas any integrity they will give you a straight answer to the question

However, the likelihood is that you are signing a minimum term lease, which means that at the end of the primary term you can return the equipment or continue paying. You need to talk to the lender/broker about your options

Regarding rate, I'm assuming you are a start up or relatively new business, in which case the rate seems about right

30%? Is it normal? Banks charge about 3% !

 

[Mark T Jones]

30%? Is it normal? Banks charge about 3% !

What has your bank offered you?

 

[The Byre]

According to the Bank of England, the average open, unsecured bank loan is 7.5%.

Once again, I must repeat, get professional advice from someone with experience in buying and equipping a restaurant!

Without that advice and experience, you stand absolutely no chance of surviving as a business!

 

[lyka]

What has your bank offered you?

Bank would not give me a loan as I am a start up and have no credit history.

 

[Mark T Jones]

Bank would not give me a loan as I am a start up and have no credit history.

So there isn't really a comparison is there?

Unfortunately you are in the highest risk lending sector - start up restaurant with limited capital and (I'm guessing) no real experience in starting/building a similar business

Any rate comparison needs to take account of this to be of any value

Banks only lend where they are comfortable. Even then they will often look for additional security and only the very best customers will get rates anywhere near 3%.

I strongly suggest that you look at the deal of n the context of whether it works for your business rather than spurious comparisons which facilities that aren't available

As an aside, have you looked at Start Up Loans?

 

[lyka]

So there isn't really a comparison is there?

Unfortunately you are in the highest risk lending sector - start up restaurant with limited capital and (I'm guessing) no real experience in starting/building a similar business

Any rate comparison needs to take account of this to be of any value

Banks only lend where they are comfortable. Even then they will often look for additional security and only the very best customers will get rates anywhere near 3%.

I strongly suggest that you look at the deal of n the context of whether it works for your business rather than spurious comparisons which facilities that aren't available

As an aside, have you looked at Start Up Loans?

Just checking if it is heard of. Such a high interest?
Equipment costing 23,000 inc VAT
Will end up paying 30,000 inc vat after 24 months

 

[Mark T Jones]

Just checking if it is heard of. Such a high interest?
Equipment costing 23,000 inc VAT
Will end up paying 30,000 inc vat after 24 months

Yip. It's the rate for the job.

Like I say, check out Start Up Loans - 6%.​

 

[Newchodge]

Do you get to specify the equipment and its age. or do you get what they supply, on the basis of 6 fridges, 1 freezer, 3 stainless steel counter tops etc etc?

 

[lyka]

Do you get to specify the equipment and its age. or do you get what they supply, on the basis of 6 fridges, 1 freezer, 3 stainless steel counter tops etc etc?

I specified what i wanted from the suppliers that i wanted and that included furniture

 

[Chris Ashdown]

You don't get it do you
They supply you new equipment and after two years you have to give it back, they then have second hand equipment to either sell or lease to another person

What you are paying for is their overheads, there investment and there loss on the value of their equipment

 

[lyka]

You don't get it do you
They supply you new equipment and after two years you have to give it back, they then have second hand equipment to either sell or lease to another person

What you are paying for is their overheads, there investment and there loss on the value of their equipment

It is not their equipmemt. They are a finance company. I chose the suppliers

 

[Newchodge]

If you are about to sign the lease agreement, you must know what it says about ownershipof the goods at the end of the payment period.

 

[Mark T Jones]

You don't get it do you
They supply you new equipment and after two years you have to give it back, they then have second hand equipment to either sell or lease to another person

What you are paying for is their overheads, there investment and there loss on the value of their equipment

Highly unlikely. I saw a bit of this kind of dodgyness back in he 80s but not since.

 

[Newchodge]

Highly unlikely. I saw a bit of this kind of dodgyness back in he 80s but not since.

In what way is that dodgy? It is the way all leasing companies, from cars to kitchen equipment work.

 

[Mark T Jones]

In what way is that dodgy? It is the way all leasing companies, from cars to kitchen equipment work.

No it isn't. You are referring to operating leases with residual values. This is a finance lease where the customer has the option to return the goods or to continue paying - possible a peppercorn rental

 

[Newchodge]

This is a finance lease where the customer has the option to return the goods or to continue paying - possible a peppercorn rental

As that is the question the OP wantd answering, and it hasn't been answered, how do you know that?

 

[Mark T Jones]

As that is the question the OP wantd answering, and it hasn't been answered, how do you know that?

The. Answer to this will lie in the contract, also if the lender/broker gas any integrity they will give you a straight answer to the question

However, the likelihood is that you are signing a minimum term lease, which means that at the end of the primary term you can return the equipment or continue paying. You need to talk to the lender/broker about your options

Regarding rate, I'm assuming you are a start up or relatively new business, in which case the rate seems about right

I thought that pretty much covered it

The fact that rental far exceed the cost of goods means that it won't be an operating lease. However it is true that the op must talk to the lender or broker to get hard answers

 

[Awinner2]

"It is not their equipment. They are a finance company. I chose the suppliers"

Incorrect. The suppliers pass title to the finance company and the finance company pays the suppliers in full. The finance company leases the equipment to you. At the end of the lease period you either return the equipment or the finance company may (depending on the lease terms) agree to sell the equipment to a third party, who in turn can sell it to you. The rates that you perceive as high is due to your lack of experience and track record in business. If your business bank will not help with finance, what option do you have? Good luck with your business when it gets going

 

[lyka]

"It is not their equipment. They are a finance company. I chose the suppliers"

Incorrect. The suppliers pass title to the finance company and the finance company pays the suppliers in full. The finance company leases the equipment to you. At the end of the lease period you either return the equipment or the finance company may (depending on the lease terms) agree to sell the equipment to a third party, who in turn can sell it to you. The rates that you perceive as high is due to your lack of experience and track record in business. If your business bank will not help with finance, what option do you have? Good luck with your business when it gets going

Basically I gave them a call, and in a nut shell If i want to explain the numbers easier:
The equipment will be mine after 24 months of repayments-the overall interest would be about 31%

So for equipment and furniture costing 23,000- the title will be transferred to me after 24 months but I will have paid for them around 30,000 after that period. 1.3x

is that a normal rate?

 

[lesliedocherty]

Basically I gave them a call, and in a nut shell If i want to explain the numbers easier:
The equipment will be mine after 24 months of repayments-the overall interest would be about 31%

So for equipment and furniture costing 23,000- the title will be transferred to me after 24 months but I will have paid for them around 30,000 after that period. 1.3x

is that a normal rate?

Sounds high, but sounds like the risk is high, hence the higher interest rate

 

[Mark T Jones]

Basically I gave them a call, and in a nut shell If i want to explain the numbers easier:
The equipment will be mine after 24 months of repayments-the overall interest would be about 31%

So for equipment and furniture costing 23,000- the title will be transferred to me after 24 months but I will have paid for them around 30,000 after that period. 1.3x

is that a normal rate?

As I've said 3 times, this is the right rate for a high risk start up

I would however get in writing details of the title transfer.

 

[Awinner2]

As Mark T Jones says "get in writing details of the title transfer". When I was selling capital equipment to the food trades, it was actually illegal to offer ownership at the end of the leased period, due to the preferential tax allowances. Of course that was some years ago and the HMRC regulations may have changed. The thinking was that if you bought the equipment either for cash or HP, you claimed write-down to a nominal sum, over 36 months. If leased the payments were fully allowable against profits earning, lowering your tax liability.

 

[lyka]

As I've said 3 times, this is the right rate for a high risk start up

I would however get in writing details of the title transfer.

Thanks Mark.
I had them send in writing transfer of title after 24 months signed.

I just needed assurance that I was not being taken advantage of or the fact that I may not get a better rate then that.

Start up loans are difficult to get in restaurant/catering field.

 

[Chris Ashdown]

Sorry to say and regardless of how experienced you are running a restaurant but start=up for new restaurants are one of the worst failures rates going, even the big boys and girls get it wrong after spending millions of shareholders money
in general business few companies last the first three years

So if you put £20,000 into someone else's start-up what sort of return would you expect when they might not last the two years

 

[Ian J]

So if you put £20,000 into someone else's start-up what sort of return would you expect when they might not last the two years

And second hand kitchen equipment has very little value

 

[lyka]

Sorry to say and regardless of how experienced you are running a restaurant but start=up for new restaurants are one of the worst failures rates going, even the big boys and girls get it wrong after spending millions of shareholders money
in general business few companies last the first three years

So if you put £20,000 into someone else's start-up what sort of return would you expect when they might not last the two years

Nicely put.

 

[Awinner2]

One thing that I have not seen in this thread when you talk about leasing the equipment is, is the finance agreement described as a lease or as lease purchase? Lease something and you rent it to use in your business, lease purchase is similar to hire purchase. In those terms you are actually buying the equipment.

 

[lyka]

One thing that I have not seen in this thread when you talk about leasing the equipment is, is the finance agreement described as a lease or as lease purchase? Lease something and you rent it to use in your business, lease purchase is similar to hire purchase. In those terms you are actually buying the equipment.

Hey there-
It is a hire purchase with a signed agreement to pass the title to me at the end of term.
Cost of equip upfront : 24k
After term, i end up paying 31k and the title becomes mine meaning I would own everything.
Term: 24 months

 

[Awinner2]

So it is not leasing at all. and hire purchase does not need any form of signed agreement to pass title because when the payment term ends (in your case 24months), title automatically passes to you in a hire purchase agreement. Remember to speak to your business accountant to get the correct tax benefits from the HP agreement.

 

[lyka]

So it is not leasing at all. and hire purchase does not need any form of signed agreement to pass title because when the payment term ends (in your case 24months), title automatically passes to you in a hire purchase agreement. Remember to speak to your business accountant to get the correct tax benefits from the HP agreement.

Thanks for that-

Sorry - it is a lease hire not hire purchase.
Does it make sense with a lease hire option?

 

[Awinner2]

Lease hire is the same as leasing. As long as you have the written agreement that title passes to you at the end of the 24 months you will be fine, Are they asking for any final payment after 24 months have been paid, to pass title, or is the equipment yours without any further outlay. My comment about talking to your accountant to make sure that the lease payments are properly put through the books still applies.

 

[lyka]

Lease hire is the same as leasing. As long as you have the written agreement that title passes to you at the end of the 24 months you will be fine, Are they asking for any final payment after 24 months have been paid, to pass title, or is the equipment yours without any further outlay. My comment about talking to your accountant to make sure that the lease payments are properly put through the books still applies.

Exactly correct. Asked for one additional monthly payement. What do you think of the rate - is it too high? Just want to make sure i am not taken adv. Of or....

 

[Awinner2]

Exactly correct. Asked for one additional monthly payement. What do you think of the rate - is it too high? Just want to make sure i am not taken adv. Of or....

Long time since I used finance with capital equipment sales (my company turned over 2M+ a year in commercial refrigeration in the 80/90s) but rate seems about average from memory