1. Read ALL of the contract (including the small print)
Whilst it may seem like stating the obvious the terms and conditions which accompany these agreements are often onerous so make sure you have read a copy of the final contract before it’s signed. Make sure you fully understand your rights and obligations, especially with regard to key issues such as costs, the length of the contract, and your options for terminating.
2. Check whether there is a separate leasing agreement in place
The service agreements for these types of office devices can often be accompanied by a separate leasing agreement which means your organisation can lease the equipment it needs and pay a monthly rental fee instead of buying the equipment outright. Whilst this may seem like an easy solution, finance agreements can also be onerous; there are a few key points to look out for.
It is industry best practice for the leasing agreements to be kept separate from the service and maintenance contracts. However, this is not always the case and sometimes the lease deal is “hidden” in the small print of the service agreement. We’ve advised clients who had no idea they had entered into a leasing agreement and were shocked when they received payment demands from an unknown third party. It is important to check whether there will be a leasing agreement in place, who it is with and what the terms of it are. Before signing anything, we also recommend doing some basic due diligence on the company you’re dealing with to see if there are any red flags. In particular, you should check to see whether the company is part of the Finance & Leasing Association as all FLA members are required to use contracts which are clear and unambiguous.
If you are entering into a leasing agreement, think about whether it relates to the services agreement for the machines. You will want to ensure that the service and leasing agreements both run over the same period of time. We are often approached by clients who have entered into a long-term lease agreement for 5 or 7 years when the duration of the service agreement for the machines is much shorter. When circumstances change and the organisation wants to end the agreements they find themselves stuck with a machine that they’re contractually obliged to keep but, without the service agreement in place, they have no means of maintaining it.
3. Make sure the contract terms match the sales pitch
It is also particularly important to ensure, before you sign the agreement, that the provisions of the contract reflect any verbal agreement which you may have reached with a sales representative. All too often, our clients explain to us that they were approached by a sales representative who promised a more cost-effective solution to meet the organisation’s needs, yet that solution is not fully reflected in the contracts which they subsequently sign – and instead there are hidden costs which weren’t discussed in advance. These agreements often include a standard provision which seeks to limit the provider’s liability for misrepresentations (loss caused by statements made before the contract was concluded) making it more difficult to challenge the supplier or get out of the contract once it has been signed.
4. Check that the contract has been fully completed before signing
Often the contracts for these agreements include blank sections so that the sales representative can easily update the contract to reflect the terms you have agreed. Before signing the contract it is important to make sure that every section has been completed and the details are accurate. You should never sign a contract that hasn’t been completed fully, even if you’re pressed for time, as there is a risk that the terms which are subsequently entered into the contract may differ from what you discussed.
5. Ensure the contract records any key obligations
Another common tactic which sales representatives seem to use is to offer to deal with your current provider on your behalf to terminate your existing contract – and even to offer to foot the bill for any termination fees that maybe payable – so that you are free to enter into a new agreement with them. Unfortunately, this release doesn’t always happen and we’ve dealt with a number of cases where an organisation’s costs have doubled after they were forced to pay twice under two separate contracts because their old agreement was never properly terminated or paid off. Often there is nothing within the new contract which reflects the sales representative’s empty promise to deal with the termination of the original agreement and this can make it very difficult to hold the sales representative to account. Be clear about exactly what they are agreeing to; is it settlement of an existing service agreement or also any related finance agreement, and up to what amount?
6. Remind your staff not to sign any paperwork and to check who they’re dealing with
Sales representatives can use devious tactics to get organisations to sign up to their contracts and we’ve dealt with a number of cases where junior members of staff have been tricked into signing a document that turns out to be an onerous contract. On one occasion, the contract was entered into unwittingly by a junior member of staff who believed he was just signing a delivery note, and didn’t realise he was dealing with a sales representative. While it may sound simple, it is important to remind your staff not to sign contractual documents on behalf of the organisation, however insignificant they may seem, unless they have the appropriate authority to do so and know what they are signing and who they are dealing with. Your accounts team should also keep an eye on regular payments out of the organisation, and to make sure they check who is being paid and why.
7. Avoid long-term contracts and diarise any key dates
Whilst it may seem tempting to sign up to a long-term contract, and often there are various perks which encourage you to do so, circumstances (and technology!) can change quickly and it is usually wise to avoid locking yourself into a long-term fixed contract which is over 3 years.
When it comes to ending the agreement, these types of contracts usually include provisions which allow for them to automatically roll into another fixed-term if the contract is not terminated in the correct way at the correct time. This can be incredibly frustrating as organisations can end up stuck in another expensive contract when they had intended to terminate the arrangement at its intended maturity. To avoid this situation, we would recommend that any key dates which relate to terminating the contract and/ or providing notice are diarised. Special attention should also be given to any terms which deal with how notice should be given.
8. Seek advice
These contracts often present a number of very thorny issues, particularly if they also involve a finance arrangement with a third party. If you are unsure about your contractual position or you’re faced with a situation where you want to terminate a contract without incurring a costly cancellation fee, it is a good idea to seek professional advice before taking action. We’d be very happy to discuss any of these issues so please do not hesitate to get in touch.
This information is necessarily of a general nature and doesn’t constitute legal advice. This is not a substitute for formal legal advice, given in the context of full information under an engagement with Bates Wells.
All content on this page is correct as of September 2, 2021.