Before committing to a lease, there are critical factors to consider – this advisory underscores the considerations schools and academies should contemplate to ensure optimal value before engaging in a compliant agreement
CREDIT: This is an edited version of an article that originally appeared on Gov.uk
While many SBMs are acutely familiar with the process of leasing, here’s a quick reminder of the different elements to consider, starting with top tips.
Considering Lease Extensions
If your existing lease or equipment arrangements suit your needs, it might be more cost-effective to explore the option of extending the lease rather than initiating a new agreement. This approach could save you both time and resources while maintaining the benefits of your current arrangement.
Defining Requirements:
Clearly delineate your requirements and ensure that you only pay for features and components that directly address your needs. Avoid unnecessary expenses by focusing on what genuinely benefits your institution’s objectives.
Taking Adequate Time
A reputable supplier will prioritise your needs and collaborate with you to align their offerings with your requirements. Take your time to evaluate options and collaborate closely with a supplier who demonstrates a genuine commitment to accommodating your specific needs.
Excluding Settlement Costs
When negotiating a new lease, refrain from incorporating settlement costs. Such costs can inflate the overall expense and might not be necessary if handled correctly during the negotiation process.
Insisting on Written Proposals
Always request a written proposal from the supplier, detailing the agreed-upon terms and conditions. This written record serves as tangible evidence of the understanding between both parties and minimises the risk of misunderstandings.
Delaying Paperwork
Hold off on signing any contractual paperwork until you have received the comprehensive written proposal from the supplier and fully comprehended the commitments outlined within. This cautionary approach ensures that you are well-informed and entirely comfortable before moving forward.
Avoiding Hasty Decisions
Do not allow yourself to be rushed into making hasty decisions. Rushing could lead to enduring expensive, long-term consequences that could have been avoided with careful consideration and due diligence.
Supplier Transparency
If a supplier is reluctant to provide the information you request or displays hesitance in addressing your concerns, view this as a telling sign. A lack of transparency could indicate that the supplier might not be the right fit for your needs, prompting you to reconsider your engagement with them.
Initiate the process by pinpointing the school’s requirements
Craft a comprehensive list detailing the essential features necessitated by the equipment.
Maintain awareness of the anticipated frequency of equipment usage. For instance, if a photocopier is under consideration, ascertain the annual volume of black and white and colour copies.
Engage in a comparison between leasing and outright purchasing
In certain instances, an outright purchase might prove to be more advantageous in the long term. Evaluate the expense associated with equipment acquisition versus leasing. This evaluation should encompass:
Potential discounted rates
Prices without VAT considerations
Maintenance costs
Examine the costs affiliated with leasing
Calculate the comprehensive equipment cost without VAT, amalgamating upfront payments and monthly instalments.
Gauge the extent of the discount attained against the manufacturer’s recommended retail price (MRRP). Discounts should not fall below 60%, as dealers can secure equipment at rates as low as 20%. Utilising the Crown Commercial Services framework, discounts in the range of 70% to 80% are typically attainable.
Factor in potential expenses linked to necessary software updates
Account for any documentation fees
Consider the annual facility fees
Evaluate the service cost, usually maintained at a fixed rate throughout the lease agreement
Factor in the settlement cost of existing leases, ensuring no interest-bearing amounts are introduced to new leases, abiding by DfE regulations. Seek guidance from your auditor if required
Understand lease categories
Opt for an operating lease when choosing to lease equipment. Financial leases are often lacking in value. Adhere diligently to your school’s procurement protocols to ensure optimal decision-making.
Before the agreement is signed make sure you have a fixed-term lease agreement and a separate service agreement so that you can see the true costs of each – these should be signed at the same time.
Ensure the length of both the agreements is for a maximum of 3 years and that you understand the minimum lease period, this is the shortest period that the school will have to make rental payments for the equipment and is fixed regardless of changes to the school’s needs.
If you’re being offered a minimum term agreement, negotiate for it to be fixed at an agreed term and sign or initial the alteration, as agreements like these can require six months written notice to terminate or it can continue to run, sometimes indefinitely. Once
you’ve asked someone else to look over it, this person should be able to provide you with honest advice.
Fixed-term lease agreement
Make sure:
the lease terms are clear
it states the residual value of the equipment at the end of the term as it gives you the option to negotiate a new lease based on this value
the costs are clear and a breakdown is included, do not allow costs to be combined, and look out for any annual increases
Service agreement
This should include terms such as:
any additional charges
cost per use
what the fixed costs are
how long costs are fixed for (this should be for the term of the agreement)
service level response and call-out times
additional services provided as part of the lease
cost of any maintenance or supplies
For advice on legal or accounting matters, get advice from a professional.
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