LEASE AGREEMENT CHECKLIST Prepared by:
ICN Corner Store — CKL1236
©2006 International Computer Negotiations, Inc.
RIGHTS AND LIMITATIONS
GRANT OF LICENSE ICN grants you a perpetual, non-exclusive, non-transferable license to use this Checklist (the “Checklist”) solely for your own internal business purposes. This Checklist may not be: reproduced; distributed; sold or transferred by rental, lease, lending or other method; posted to the Internet; posted to an intranet or extranet. You are permitted to make one copy of this Checklist for backup purposes only. This Checklist may be used to develop contracts and derivative works, but only if such contracts and derivative works are used solely for your internal business purposes and not sold or otherwise transferred to other parties. Other than the rights expressly granted to you by ICN, ICN retains all rights in the Checklist.
LIMITATION OF LIABILITY AND DISCLAIMER OF WARRANTIES. THIS CHECKLIST IS NOT INTENDED AS A SUBSTITUTE FOR CONSULTATION WITH YOUR LEGAL COUNSEL AND OTHER PROFESSIONALS. ICN HIGHLY RECOMMENDS USING LEGAL COUNSEL AND OTHER PROFESSIONALS WHEN CREATING AND REVIEWING FORM DOCUMENTS SO THAT THE FINAL PRODUCT CONFORMS TO YOUR BUSINESS PRACTICES AND PRIORITIES AND TO THE LAWS APPLICABLE TO YOUR ORGANIZATION. THIS CHECKLIST IS PROVIDED TO YOU “AS IS” WITHOUT ANY WARRANTIES OF ANY KIND, EXPRESS, IMPLIED OR STATUTORY. YOU AGREE THAT YOU BEAR ALL RISKS ASSOCIATED WITH THE EVALUATION AND USE OF THIS CHECKLIST, INCLUDING BUT NOT LIMITED TO YOUR RELIANCE ON THE ACCURACY, COMPLETENESS AND USEFULNESS OF ITS CONTENT. TO THE FULLEST EXTENT PERMISSIBLE UNDER APPLICABLE LAW, ICN DISCLAIMS ALL WARRANTIES WITH RESPECT TO THE CHECKLIST, INCLUDING THE WARRANTIES OF MERCHANTABILITY, FITNESS FOR A PARTICULAR PURPOSE AND TITLE. ICN WILL NOT BE LIABLE FOR ANY DIRECT, INDIRECT, INCIDENTAL, CONSEQUENTIAL, SPECIAL, EXEMPLARY OR PUNITIVE DAMAGES OF ANY KIND UNDER CONTRACT, NEGLIGENCE, STRICT LIABILITY OR OTHER THEORY, INCLUDING BUT NOT LIMITED TO DAMAGES FOR LOSS OF PROFITS, USE, DATA OR OTHER INTANGIBLES, EVEN IF ICN HAD BEEN ADVISED IN ADVANCE OF THE POSSIBILITY OF SUCH DAMAGES, THAT MAY RESULT FROM YOUR USE OF THE CHECKLIST.
ICN Corner Store — CKL1236
©2006 International Computer Negotiations, Inc.
Table of Contents
Lease Versus Buy Decision .......................................................................................................................... 4 Obtain Lease Rate Quote............................................................................................................................. 5 Determine if Lease Rate Quote is Compatible with Desired Lease Structure......................................... 5 Determine Internal Cost to Purchase Equipment ..................................................................................... 5 Compare Lease Cost to Purchase Cost....................................................................................................... 5 Master Lease Agreement ................................................................................ Error! Bookmark not defined. Identification of Parties................................................................................... Error! Bookmark not defined. Definition of Terms Used in Agreement ........................................................ Error! Bookmark not defined. Equipment Acquisition and Acceptance........................................................ Error! Bookmark not defined. Lease Term....................................................................................................... Error! Bookmark not defined. Rent – Usage – Tax Beneficiary...................................................................... Error! Bookmark not defined. Equipment Location/Site Preparation........................................................... Error! Bookmark not defined. Tax Indemnity.................................................................................................. Error! Bookmark not defined. Casualty Occurrence ....................................................................................... Error! Bookmark not defined. Insurance.......................................................................................................... Error! Bookmark not defined. Inspection ......................................................................................................... Error! Bookmark not defined. Warranty Disclaimer....................................................................................... Error! Bookmark not defined. Maintenance..................................................................................................... Error! Bookmark not defined. Equipment Additions and Upgrades.............................................................. Error! Bookmark not defined. Lessee Events of Default and Lessor Remedies............................................. Error! Bookmark not defined. Lessor Remedies .............................................................................................. Error! Bookmark not defined. Events of Lessor Default and Lessee Remedies............................................. Error! Bookmark not defined. Lessor Assignment........................................................................................... Error! Bookmark not defined. Lessee Assignment and Sublease.................................................................... Error! Bookmark not defined. Merger or Consolidation................................................................................. Error! Bookmark not defined. Quite Enjoyment.............................................................................................. Error! Bookmark not defined. Lessee Rights.................................................................................................... Error! Bookmark not defined. Fair Market Value and Fair Market Rental ................................................. Error! Bookmark not defined. Return of Equipment ...................................................................................... Error! Bookmark not defined. Representations and Warranties.................................................................... Error! Bookmark not defined. Payment............................................................................................................ Error! Bookmark not defined. Miscellaneous ................................................................................................... Error! Bookmark not defined. Equipment Schedule........................................................................................ Error! Bookmark not defined. Acceptance Certificate .................................................................................... Error! Bookmark not defined. Casualty Value Table/Termination Value Table .......................................... Error! Bookmark not defined.
ICN Corner Store — CKL1236
©2006 International Computer Negotiations, Inc.
This checklist is primarily designed to be used in analyzing or preparing an IT equipment lease involving new hardware (include software) that has been selected by the lessee. The lessor’s role is to purchase the equipment from the manufacturer, under the same terms and conditions as negotiated between lessee (user) and manufacturer, and lease the equipment to the lessee for a fixed term. The equipment purchase agreement describes the equipment’s capabilities, any warranties made by the manufacturer, as well as, any equipment acceptance criteria. The checklist does not include a variety of matters that would be included in the purchase agreement between the lessee (user) and the equipment manufacturer. The lessor’s role, even if the lessor and manufacturer have names that would appear to have them related, is only to provide the financing. This checklist assumes the lease transaction is structured with a Master Lease Agreement (MLA) which, contains the general lease terms and conditions, and an Equipment Schedule which, addresses issues specific to a transaction, such as the amount of rent, location of the equipment, etc. This checklist applies to generally available IT equipment that is typically used in a data center, office or desktop environment. Specialized equipment, such as, medical diagnostic equipment, may require some modification to the recommend lessee positions.
Prior to entering into any lease agreement, all lease transactions should be subject to a lease versus buy analysis to determine the best acquisition strategy.
Lease Versus Buy Decision Determine the Desired Lease Structure • Lease transactions are classified in two forms: o Capital Lease – a finance transaction which is required to be capitalize on the balance sheet o Operating Lease – a finance transaction which is not capitalized on the balance sheet – off balance sheet financing Determine if the desired lease transaction should be classified as either capital or operating for the lease option to be further considered
ICN Corner Store — CKL1236
©2006 International Computer Negotiations, Inc.
Obtain Lease Rate Quote Solicit from a group of lessor’s, who have agreed to the same lease conditions, lease rate quotes • The requested quote should be for the identically same equipment and with the same cost to purchase • The requested quote should be for multiple lease terms (24, 36, 48 months, etc.) Determine if Lease Rate Quote is Compatible with Desired Lease Structure Calculate the net present value (NPV) for each of the lease rate quotes received Determine if the NPV for any of the quotes received is compatible with the desired lease classification (capital or operating) Have the preliminary results of the above step verified by CFO or independent auditors Determine Internal Cost to Purchase Equipment To determine the internal cost to purchase the equipment the following factors should be considered: • Equipment cost • Deprecation • Taxes • Internal cost of funds • Salvage value of equipment Compare Lease Cost to Purchase Cost Compare the results of the above analysis to determine acquisition strategy
ICN Corner Store — CKL1236
©2006 International Computer Negotiations, Inc.
