Clauses in or contents of a lease agreement
There is no standardized lease agreement. The contents differ from case to case. A typical lease agreement contains the following clauses:
1. Nature of the lease: This clause specifies whether the lease is an operating lease, a finance lease or a leveraged lease. It is specified that the lessor, agrees to lease the equipment to the lessee and the lessee agrees to take on lease from the lessor subject to terms and conditions of the lease agreement, and the leased equipment.
2. Description: The clause describes in detail the equipment, its actual condition, size, components, estimated life and soon.
3. Delivery and redelivery: The clause specifies when and how the equipment would be delivered to the lessee and redelivered to the lessor on the expiry of the lease agreement.
4. Lease period: The lease is originally for a period called the primary lease period. Thereafter, the lease is subject to renewal for the secondary lease period. The clause specifies lease period.
5. Lease Rental: This clause stipulates the procedure for paying lease rentals by the lessee to the lessor. Lease rentals are to be paid at the rate specified in the agreement. It also specifies the mobilization of advance required and any guarantee which may be applicable. Besides, the clause explicitly states that the lessee would pay on demand a late payment charge, a percentage per month of each installment of lease rent.
6. Use: This clause sets out the responsibility of the lessee for proper and lawful usage of the leased equipment.
7. Title: This clause provides for identification and ownership of equipment.
8. Repairs and maintenance of leased equipment: This clause specifies the responsibility for repairs and maintenance, insurance and so on.
9. Alteration: No alteration to the lease equipment may be made without the written consent of the lessor.
10. Possession: The lessee is guaranteed peaceful possession of the equipment clear of any charges, liens or any other encumbrances.
11. Charges: This clause specifies which party to the agreement would bear the delivery, re-delivery, customs, transport, income tax, sales tax, and clearance charges.
12. Indemnity clause: The indemnity clause indemnifies the lessor from any consequential loss arising from non-performance of the leased equipment.
13. Inspection: Inspection clause provides for inspection by the lessor or his representative for confirming the existence, condition and proper maintenance of the equipment.
14. Sub-leasing: This clause prohibits the lessee from sub-leasing the equipment to third parties.
15. Default and remedies: This clause deals with consequences of default by the lessee. The recourse available to the lessor is specified. This clause may specify other remedies if any.
16. Applicability of Law: This clause specifies the country whose laws would prevail in case of a dispute. It may also contain a provision of arbitration in case of a dispute.