10 Questions to Ask Before Signing an Equipment Lease

A lease quote is designed to look simple. The cost of the lease lives in the clauses that the headline rate does not mention. Before you sign, get clear answers to these ten questions in writing.

1. Is this an operating lease or a finance lease?

The distinction drives everything else: accounting treatment, end-of-term rights and who carries residual risk. A finance lease transfers most ownership risks and rewards to you; an operating lease keeps them with the lessor. If the answer is vague, read operating lease vs finance lease and ask again.

2. What are my options at the end of the term?

Can you return the machine, extend, upgrade, or buy it? At what price? A lease that forces a purchase you did not plan for, or charges a steep fee to walk away, is a different deal from one with a clean return.

3. How is the residual value set, and who bears the risk?

The residual is the assumed value of the machine at term end. If you carry the residual risk and the market value falls short, you pay the gap. Ask how the residual was calculated and whether it is guaranteed by you or the lessor.

4. Is maintenance included?

A bare lease and a full-service lease are different products. Confirm exactly what servicing, parts and wear items are covered, and what you pay separately. Unbundled maintenance can quietly add a fifth to the running cost.

5. What does early termination cost?

Plans change. Ask for the exact penalty for ending the lease early, in figures, not principles. Over-long terms with harsh exit fees are a common and expensive trap.

6. How is this lease treated on my balance sheet?

Under IFRS 16, most leases over 12 months add a right-of-use asset and a liability, raising reported debt. If you have loan covenants or tight gearing, ask your auditor how this specific lease will be classified before you commit.

7. What is the total cost over the full term?

Add every payment, fee, residual and end-of-term charge across the whole period. Compare that total, not the monthly figure, against other options. Then sanity-check it in the rent vs lease vs buy calculator.

8. Is insurance required, and who provides it?

Most leases require you to insure the asset to a set level. Confirm whether insurance is bundled or your responsibility, what cover is mandated, and what it costs, so it goes into your comparison from the start.

9. Are there usage limits or penalties?

Some leases cap operating hours, mileage or sites, with charges for exceeding them. If your usage is high or unpredictable, an hours cap can turn a tidy rate into an expensive one. Ask for the limits and the overage rate.

10. What is the upgrade path?

Equipment ages, and emissions rules tighten. Ask whether you can swap into newer or cleaner machines mid-term, on what terms, and whether early upgrades trigger penalties. A rigid lease can strand you with an asset you cannot legally or economically run.

Before you sign

| Ask about | Red flag | |---|---| | Lease type | "It doesn't really matter" | | End-of-term options | Forced, unpriced purchase | | Residual risk | You carry it without knowing the basis | | Maintenance | Excluded but not flagged | | Early termination | Penalty undisclosed | | Total cost | Only monthly figure offered |

Get the answers in writing and run the total cost yourself. A good lessor will welcome the questions; one that dodges them is telling you something.