Assessing the telephony needs of a client last week, I was surprised to find they had fallen victim to the once popular ‘evergreen clause’ in their current equipment lease. For many, whilst the evergreen clause is legal, it is far from ethical and it is easy to see how people busy running their businesses are fooled into signing, without necessarily understanding the full implications of their actions.
Anyone reading this and seeing the term ‘evergreen clause’ for the first time will be surprised by it and the tricks used by less ethical leasing companies to ensure old equipment continues to deliver fat profits. There is no arguing about the obvious benefits delivered by leasing, with often expensive equipment brought within reach of every business thanks to the cost spread across the term of the lease.
But with telephone equipment for instance, which is getting ever more complicated as voice and data continue to converge, the problem can be when extra equipment is added to the system. A prospect, alarmed at the small print in the contract they admitted to having just read for the first time, noted that adding new phones to allow for growth in the business, would result in the lease automatically renewing; for the full term.
This cleverly written lease, with a huge amount of small print, all couched in almost indecipherable legal terminology meant that even four years into the five year lease, adding ten new phones would effectively re-start the lease from the beginning – another five years of paying for now old equipment.
The evergreen auto renew clause as is often known, will hide away amongst the terms and conditions, appearing something like this: No more than 90 days and no less than 30 days prior to the completion of the Term, the Lessee shall give the Lessor written notice of the Lessee’s intention to terminate the lease. If the Lessee fails to so notify the Lessor or, having notified the Lessor, the Lessee fails to return the Equipment as agreed at the end of the Term, the lease will automatically renew for another 12-month period under the same terms and conditions…you get the idea.
The original lease will also often contain the option to purchase the equipment at the end of the lease at an agreed percentage of the original cost, typically 10-20%, which sounds fair. But again, relies on the lease terminating when expected and agreed. Any changes to the lease, including re-starting due to the addition of new equipment, or failing to notify an intention to terminate, will affect this price.
There is even no responsibility on the lease provider to tell you the lease has ended and that the equipment can be yours for a small charge – they can keep on taking the monthly payments until you tell them to stop, giving the required notice period of course.
The more professional service providers, like ourselves, will notify you in advance that your lease is coming to an end and will expect to have a conversation about equipment purchase if you’re happy, or a tech refresh if new equipment will help your business grow. The new equipment can be supplied on a similar lease, with no hint of an evergreen clause.
So in short, check your existing leases carefully and take great care when signing new ones – the amount you are risking should indicate how long you need to spend reading the T&Cs or asking your solicitor to.
Terry Faria, Telecommunications Manager, Quiss Technology