Oliver E. Frascona was a popular real estate lawyer, educator, and columnist for REALTOR® Magazine. He was tragically killed in a plane crash in 2014. Frascona was a partner in the Boulder, Colo., law firm Frascona, Joiner, Goodman, and Greenstein PC. His practice areas included real estate, brokerage law, contracts, finance, land use, leasing, real estate title, business law, association law, and litigation.
Read the Fine Print
On office outlays, read with care or pay the price.
October 1, 2008
So, it’s time to buy or lease a new copier, phone system, or other expensive electronic productivity tool to improve efficiency and cut your expenses. Before you start, a word of warning: No matter how sharp the product or how much money the vendor promises you’ll save, read the fine print in the contract before you sign. Otherwise, you may find out you’ve bought or leased some real headaches.
First: Know Whom You Bought It From
That may seem obvious, but think again. Let’s say you find a great phone system that you know will get calls to your associates faster and save you the salary of a receptionist. But it’s expensive. No problem. The vendor that sells or leases you the machine offers to "arrange" all the financial details. Sounds great. But once the machine doesn’t work—surprise! Only then do you find out that the lease or the loan is completely separate from the agreement with the vendor.
That means that if the machine doesn’t work, your dispute is with the vendor. So although you can sue over a defective machine, you still owe the leasing or financing payment to the third party on a machine that doesn’t work. Yes, that great financing that helped you afford the machine may have come from or been sold to a third party that isn’t concerned with the operation of the machine.
Second: Know Your Rights in a Dispute
One common equipment contract clause specifies that the parties arbitrate any disputes about the product rather than litigate them. You may also learn that if you have the option to litigate, you won’t be suing the vendor for the cost of repairs or nonexistent service in a local court or applying the laws of your state to the dispute. Instead, you’ll travel far across the country to the vendor’s "designated venue" state indicated in the contract for all dispute resolution. Think you’ll litigate, now? Probably not.
So, that leaves arbitration. Arbitration is in essence a "private court" where the arbiter makes a decision that usually cannot be appealed by the parties. The rules for an arbitration are set by the contract and often follow guidelines created by the American Arbitration Association or a similar group.
The arbitration rules for a dispute with a equipment vendor are probably not the same guidelines as those used by REALTOR® associations for arbitration. Arbitration is faster and less expensive than litigation, but it’s just as likely to leave you without a complete resolution to your problem. And like litigation, an arbitration must be held in the location designated in the contract and follow other specific rules and procedures agreed to by both parties. So once again, you have to get out that magnifying glass and study the fine print.
If it’s beginning to sound like it would just be easier and cheaper to pay the balance of the loan or terminate the lease at whatever penalty, you’re starting to understand why contracts are so often written the way they are.
Finally: Know How to Do It Differently Next Time
If I’ve convinced you to just stay with that old copier for another couple of years, there are alternatives. Try to include a clause in the contract that calls initially for mediation of all disputes and then specifies what your options are if mediation fails.
Mediation, which you may be familiar with because it’s used by REALTOR® associations to resolve disputes between members, provides a more balanced approach to dispute resolution. In general, a mediator works with both sides to come up with a solution that works for all parties. Mediation is also faster and generally less expensive than other dispute resolution options.
Also, make sure the vendor and the company holding the lease or the loan are one entity without the ability to separate the contracts. This way, if you have a dispute, you can resolve any problems with one party instead of negotiating repairs with one party and payments with another.
Finally, save yourself aggravation by finding out, before you sign the contract, who is responsible for service and maintenance on any equipment you lease or purchase. It’s easy to assume that maintenance will be taken care of by the vendor, but that’s often not the case. You also need to know what service is included, how it will be billed, and how any third-party service relates to the warranty.
Ultimately, the best way to avoid disputes over equipment repairs is to not have them in the first place.