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It is sometimes great to own your own heavy construction equipment. That huge backhoe over there is yours to keep and use however you like! However, sometimes, owning such construction machines can be a pain for a small construction company. Construction equipment leasing companies in Kenya will alleviate the headaches of storing and maintaining the tools. They will also take care of the organization of documents. You do not need to pay heaps of money equivalent to a King’s ransom for the heavy equipment when you can lease them.
Let us dive into the world of construction; where we talk about equipment lease agreements, the factors to consider before leasing, the types of equipment leases, and the components of an equipment lease agreement. Furthermore, the top five construction equipment leasing companies in Kenya. Let’s begin!
Equipment Lease Agreement, what is it?
This is a contractual agreement where the lessor, who is the owner of the equipment, allows the lessee to use the equipment for a specified period in exchange for periodic payments. The subject of the lease may be construction machines, vehicles or any other equipment.
Once the lessor and lessee agree to the terms of the lease, the lessee gets the right to use the equipment and, in return, makes periodic payments during the duration of the lease. However, the lessor retains ownership of the equipment and has the right to cancel the equipment lease agreement if the lessee contravenes the terms of the agreement or engages in an illegal activity using the equipment.
Now that we are on track with this train of thought, one looking to work with construction equipment leasing companies in Kenya should be knowledgeable about the types of equipment leases.
The types of equipment lease agreements
Equipment leases are usually categorised into two;
1. Capital lease
A capital lease is usually long-term and non-cancellable and is used to lease equipment that one wants to use in the long term or purchase at the end of the lease period. In this lease, the lessee is responsible for maintaining the asset and paying any insurance and taxes associated with the equipment.
The equipment’s assets and liabilities are recorded in the lessee’s balance sheet during the lease period. This type of lease is preferable among many when renting expensive capital equipment that they may not have the funds to purchase immediately.
2. Operating Lease
An operating lease is usually short-term and cancellable before the expiry of the lease period. This option is common for those that want to use the equipment for a short period or replace the equipment at the end of the lease.
The lessor retains ownership of the equipment and bears the risk of obsolescence. A lessee can cancel the equipment lease agreement, with prior notice, at any time before the expiry of the lease period, but usually with a penalty.
Apart from the two types of leases mentioned above, there are other types of equipment leases that combine the features of capital and operating leases to meet the needs of both parties. For example, the lessor may opt for a hybrid equipment lease for tax and financial advantages. Leveraged leases allow the lessee to finance the lease cost by issuing debt and equity against the equipment lease payments.
What to consider before leasing
Hold on, do not ring up any construction equipment leasing companies in Kenya just yet! When you are considering the construction equipment leasing route, it is important to be clear on how long you need the equipment. Although this varies from agreement to agreement, there could be major financial repercussions if the equipment is retired earlier or after the agreed date. Study the terms and conditions of the agreement carefully, ensuring that the period repayments you are supposed to make are within your ability to pay.
7 components of an Equipment Lease Agreement
This agreement comprises certain terms that form the basis of the contract. Some of these terms may include:
1. Lease duration
The lease duration will depend on the company’s needs and the cost of the equipment. For a small business whose equipment needs may change quickly, a short lease duration is a favourable option. For expensive capital equipment, a longer lease duration is more convenient and cheaper in the long term.
2. Financial terms
The equipment lease agreement includes terms such as the timelines on payments – for example, when the periodic payments are due and the last due date for late payments.
3. Payment due to the lessor
Consider your projected cash flows to decide if you can meet the periodic interest and principal payments. The payments are spread over several months until the expiry of the lease period or when the lessee takes ownership of the equipment if there’s an existing agreement with the lessor.
4. The market value of equipment
Some equipment is expensive, and the lessee needs to understand the market value of the equipment before getting into the contract. Knowing the market value helps the lessee assess the insurance costs to protect against the equipment being lost or damaged.
5. Tax obligation
Depending on the type of lease, the lessee may be required to pay certain costs, such as taxes, on the equipment. Knowing the tax responsibility under different types of leases will help you avoid the pitfalls of unanticipated expenses. No one wants that right?
6. Cancellation provisions
The equipment lease agreement must include guidelines for agreement cancellation. You may decide to cancel the agreement midway, either because they find an alternative or because the equipment is defective or outdated.
Some leasing companies may charge punitive penalties if the actual penalty rates were not disclosed at the initial stage. Technology-based equipment becomes obsolete fast, and a business may want to find alternatives quickly to beat the competition.
7. Lessee renewal options
These provide guidelines on the renewal process at the expiry of the lease period. The lessee may want reduced periodic payments or an opportunity to acquire the equipment at the expiry of the lease period.
This brings us to the companies in the field providing such services;
Top 5 construction equipment leasing companies in Kenya
One of the key factors that have contributed to the growth of the construction industry is the availability of quality construction equipment. In the past, Kenyan construction firms had to rely on imported equipment, which was often expensive and difficult to maintain. Today, there are many local companies that offer quality construction equipment for lease. This has made construction firms access to the equipment they need to complete their projects on time and within budget.
These are the top 5;
1. Zohari leasing
Zohari Leasing is a wholly-owned subsidiary of Centum Investment. The company specialises in consumer leasing, commercial vehicle leasing, farming equipment leasing, construction equipment leasing, business technology leasing and fit-outs leasing.
Contact them at 0709 902 000 or send them an email via [email protected].
2. Rent Works East Africa Ltd
They are one of the leading independent leasing companies in Kenya with a proven ability to help businesses achieve their goals. The company offers a proven combination of asset intelligence, adept leadership and a rare understanding of construction equipment. Ring them at 020 273 7006, 020 273 7120.
3. Vaell Leasing
They provide cost-effective construction leasing solutions that enable you to retain your liquidity, and stay on the cutting edge of technology while still having the tools you need to get the job done. Get in touch with them as soon as you can through 0731 440 832 and [email protected].
4. Elease Limited
Elease Limited provides unrivalled asset leasing frameworks and hires purchase deals to business clients for a wide range of products in different fields. They lease construction equipment, office equipment, IT equipment, vehicles, agricultural equipment and medical equipment. Here is their contact and email address respectively; 0717 755 855, [email protected].
5. Quipbank Trust Limited
It is an equipment bank that offers vehicles and equipment rental and sales options, specialising in mining and construction equipment, agricultural equipment, automotive, trucks and trailers. Reach them on 0700 055 762 or 0782 843 045.
A summary
It is important that one understands what an equipment lease agreement is, the type of equipment lease, and the components of an equipment lease agreement. The factors you should consider before hiring construction equipment leasing companies in Kenya.
After reading this article, what are some of the points you would have probably overlooked?
