One of the fun parts of negotiating leases is collecting the war stories. The negotiations often produce revealing and humorous moments.
We had a pretty rough negotiation over two days supporting a client in an end of lease buy-out from a lessor who had taken an aggressive stance regarding end of lease costs. Like many leasing companies, this company had an end of lease negotiations specialist – sometimes humorously referred to as “Dr. Death” – who was the counter-party in the negotiation.
A little background on leasing company HR: It’s not uncommon for equipment leasing companies to have both a business development function and a lease end specialist function. Some employees are paid to develop business and others are paid to end leasing relationships
with customers profitably. Leasing sales people – those smooth talkers who call you every day – open accounts, manage relationships, entertain clients and close deals. But when a lessee decides to stop leasing and the negotiation to end of lease comes around, some leasing companies have a specialist who is sent in to deliver the bad news. The bad news usually boils down to the lessor explaining that ending the leases is going to be far more expensive than the lessee thought because the contract is so favorable to the leasing company, any verbal understandings regarding notice and other issues are not reflected in the contract etc. ”Now we go by the letter of the contract.” If things go badly in the negotiation Dr. Death may invoke default - since many leases are written in such a way that it is pretty easy for a lessee to be in default in one way or another at any point in time.
In this particular negotiation the Dr. Death was tough and knowledgeable –which is actually a good thing since dealing with leasing sales reps who just keep repeating “that’s not leeeeeasing” (see blog post That’s not LEEEASING” or Lessors are from Mars and Lessees are from Earth) gets a little tiresome. In the end, we found our way to a deal which satisfied the client – saving them about $2 million net of our fees.
The Dr. Death role is a tough one – kind of the inverse of developing client relationships – and I have always wondered how hard it would be to do that work. A few weeks after this negotiation with this particularly effective and tough Dr. Death I got a phone call. “Well that was fun – I’d like to say you left some money on the table but we gave everything we could … on the flight back I started thinking – you guys are doing something good – I’d like to work with you guys.” After years of dealing with mad clients and delivering bad news this Dr. Death wanted to switch sides. He said “I’ve had the black hat on too long.”
Conclusion: The fact that companies go into extension on almost all leases, lose equipment and cannot return a significant portion of the leased equipment when the program comes to an end is not a surprise to leasing companies – nor is it uncommon. Many leasing companies actually specialize in managing these end of lease term situations. Since the leasing companies have specialists who deal with end of lease negotiations, it is helpful for companies to bring in experts for assistance during these situations as well.
