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26 P E E R T O P E E R : I L T A ' S Q U A R T E R L Y M A G A Z I N E | S P R I N G 2 0 2 2 • Software costs also carry associated soft costs that may not be factored into an outright purchase price. • Financing terms may offer more flexibility and incorporate upgrades that would otherwise pose additional after-purchase costs. • It is fixed rate financing in an interest rate increase environment Avoid Onerous Terms and Conditions in Lease Agreements Lease restructures are a time-tested financial strategy to put cash back into your firm. There are a couple of factors to consider here, one of which is whether your current lease agreements are providing adequate flexibility, as well as the useful life of the assets. The total cost of your Master Lease Agreement (MLA) is not solely determined by the lease rate. Some MLAs contain onerous terms and conditions that significantly increase the true total cost to your firm. We proactively educate the market about many of these leasing land mines including potentially onerous terms and conditions. Here are a few of which to be aware: • Fair Market Value Purchase Option for Software and Services. A leasing company that asks for the Fair Market Value for software and/or services financed either by themselves or as part of a hardware package can be extremely expensive. Financing implementation services and software on a lease can provide a way to stretch these costs out over a term. However, having these fully amortized during the lease term and then added to the cost of hardware at the end of that term could be a negative outcome for your firm. • Extended Pro-Rata Rental Periods. Installation of a project takes time. However, some Lessors will charge you rent for equipment as it is installed, which can run six months or longer, and in some cases over a year in duration. This can make a lease transaction much more expensive than you originally realized. • Difficult or Tricky End of Term Notice Provisions. Some lessors want a written notice that has to be given in a 30-day (or less) window, many times between 3-6 months prior to lease end. If you miss this window, the lease then renews for a specific period of time – most often six to 12 months – at the original lease rate. • Late Return Equals Notice Cancellation. Contracts that stipulate that returning equipment late (i.e. anything over 10 days beyond the end of the lease term on one lease) negates your notice and automatically renews that lease for another year (or period of time). This is absurd, but it happens. • No Return Provision at End of Term. Customer must purchase the equipment or extend the lease. Some contracts that look like three years end up in reality being three and a half or four years long. Do you want to be stuck with obsolete technology? Sale & Leasebacks and Tax Incentives Sales & leasebacks is a strategy that we are working on with our clients to inject capital back into their firm from equipment they already own and can considerably help offset un-budgeted expenses. One Am Law 100 client we work with was able to recently refinance their office equipment and gain $5 million back in liquidity. Section 179 accounting rules help leasing and financing customers save money on taxes at the end of the F E A T U R E S

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