2027 CLFP Recertification

Commercial equipment lease and loan agreements are foundational documents in the equipment finance industry, yet no two contracts are identical. While formats vary, well-drafted agreements consistently include several core provisions that define the parties’ rights, obligations, and remedies. For professionals in the equipment leasing and finance space, understanding the purpose and function of these terms is essential. Below is an overview of some of the most important provisions commonly found in lease and loan agreements.

One of the first essential components is the identification of the parties. A contract is only enforceable if it lists each party. Using the precise corporate name ensures the agreement is binding and supports proper UCC filings. Additionally, identifying the supplier is particularly important in finance leases, as it reinforces that the lessor is not affiliated with the seller and that the customer must look to the supplier, not the lessor, for equipment-related issues.

A detailed equipment description is equally critical. Information such as manufacturer, model, year, and serial number or VIN enables clear identification. Agreements also typically state where the equipment will be located, and many require the customer to obtain written consent before relocating it for risk management and tax purposes.

Well-drafted equipment lease and loan agreements include conspicuous disclaimers, with the disclaimer of warranties being the most significant. Under the UCC, sellers and lessors may be deemed to provide implied warranties unless they are clearly disclaimed. Accordingly, contracts frequently state, often in bold or capitalized text, that the equipment is provided “AS IS, WHERE IS,” and that the lessor/lender makes no representations regarding its condition or fitness for a particular purpose. These provisions direct the customer to pursue equipment complaints directly with the supplier.

The financial terms outline the economic structure of the transaction, including commencement dates, payment schedules, late charges, and non-cancellation provisions. Contracts generally include a “Hell or High Water” clause, which requires the customer to make all payments unconditionally and without setoff, regardless of any dispute or claim against the lessor/lender or supplier.

Most agreements also contain choice of law provisions specifying which state’s law governs the contract. This promotes predictability and minimizes judicial conflicts of law issues. However, the selected state generally must have a meaningful relationship to the transaction. Choice of law differs from choice of forum or consent to jurisdiction, which dictate where disputes must be litigated.

Because equipment can be damaged or cause injury, agreements include comprehensive insurance requirements. These provisions typically require property insurance naming the lessor/lender as loss payee and, with respect to leases, liability insurance naming the lessor as an additional insured. Loss and damage clauses ensure that, in a total loss, the lessor/lender is made “whole,” often through a stipulated loss value formula.

Other essential terms include customer default and lessor/lender’s remedies, assignments, waivers of defenses, indemnification, and severability, all designed to protect the lessor’s/lender’s rights and preserve the enforceability of the agreement.

While these provisions are common, state laws vary, and agreements must be drafted and interpreted carefully. Consulting experienced legal counsel is always recommended.

For further details, refer to the Legal and Documentation chapters of the CLFP Handbook.