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OCTOBER 2012 issue of
Rental Management

‘Tweaking’ rental contracts
10/03/2012

It may be easier to create a new, fully compliant document

As many rental operators have come to understand, sometimes painfully, a rental contract can be a tremendously valuable source of protection, but in most cases, only if the customer signs it. Even when the rental contract has been signed, however, the rental operator may find out, oftentimes too late, that it didn’t include the necessary protections, yielding disastrous results.

To the delight of plaintiffs and personal injury lawyers around the country, rental operators often continue to use the same rental contract forms handed down from their predecessors, friends, family members, competitors and state or local rental associations that “everyone’s been using for decades” because “they always worked before.”

That is, of course, a perfectly reasonable thing to think. Why fix something if it “ain’t broke?”

Actually, an old rental contract is broken. Rental operators are facing more and larger lawsuits than ever before. Laws, local rules, regulatory requirements and the lawsuits they generate have changed dramatically over the past 20 years. Consider the following:

  • The Uniform Commercial Code (UCC) has been adopted in all 50 states.
  • The UCC contains a special section dealing solely with leases (Article 2A).
  • Many states have adopted specific excavating/notice requirements and every state now has a “one-call” telephone number for notification of utilities providers. These notice requirements also apply to tent-staking and rental companies are often held liable for compliance even if the customer assumes liability in the rental contract, which can make an indemnity provision that much more valuable.
  • States across the country have begun adopting “theft-of-services” laws that deal specifically with rented equipment and some require specific language in the rental contract.
  • A number of states have adopted mechanics’ lien statutes that specifically include rights for providers of rented equipment.
  • A federal law has been enacted which deals with credit card security.
  • Bankruptcy courts and taxing authorities have begun “recharacterizing” rental contracts as “financing arrangements” if/when they contain bargain purchase option provisions.
  • Federal and state laws have been adopted authorizing digital and electronic signatures, making them generally enforceable.
  • “Consumer protection” laws and lawsuits have expanded.
  • “Strict liability” lawsuits have grown dramatically in terms of number and size, and rental operators often are now included as defendants.
  • Enormous “class action” lawsuits are now being filed against rental companies that offer damage waivers, which allegedly provide limited or no protection. As of Aug. 5, 2010, there were 746,959 plaintiffs in the Hertz class action suit entitled Miguel V. Pro and Davis Landscape, Ltd. v. Hertz Equipment Rental, Civil Action No. 06-3830 (DMC).
  • A rental operator now can easily spend more than $100,000 defending a single lawsuit and may never get a penny of it back, even if he/she wins the suit.

A client came to me recently and asked if I could “just tweak” his current rental contract so that it would provide the necessary protections “without having to write a whole new contract.”

He explained that it seemed like his current contract should be “good enough” if I could just add some of that “additional legalese,” so it would cover these new types of liabilities he’d been hearing about.

This is a perfectly reasonable question to ask. If someone already has a rental contract, why shouldn’t they think it just needs a patch here and there to be perfectly fine?

Seeing my client’s puzzled look when I tried to describe the legal issues involved — not to mention the problem of trying to fit all of the necessary additional language onto a single 8.5-in-by-11-in. page because he was using a standard rental software package — it occurred to me that the process needs a metaphor to describe it.

Imagine you’re a mechanic at a high-end car dealership. A person drives up in a 1973 Volkswagen Beetle and asks, “Can you just take the ‘important’ parts off of one of those Cadillacs and put them on this Beetle? I really need a good car, but I just can’t get comfortable spending that kind of money on a new one.”

The second question you ask him — never mind the first — might be, “Which parts do you think are important?” The response: “Well, the engine seems important, and maybe the rest of the drive-train, the suspension, the brakes, maybe the interior and a few other things, but just leave out all the ‘unimportant extra stuff’ because I already have a car and I really don’t want to buy a whole new one.”

You explain that it would probably take more time and money to transform his Beetle into a Cadillac than it would to simply buy a Cadillac. “You’re just trying to sell me a new car,” he responds with narrow-eyed suspicion. You see him a month later driving this:

Most people realize instantly that it just isn’t possible to create a “sort-of” Cadillac or Rolls Royce, but why? From my perspective, it’s because the whole car fits together exactly the way it’s supposed to. There really aren’t any “extra” or “unnecessary” parts. Each one has a unique purpose and works together with all of the other parts exactly as it must in order to create an automobile that looks and performs like a Cadillac.

That is very much like the way a properly written rental contract works. Each provision is created to accomplish a specific legal purpose, working together with each other provision. That also is the reason why attempts to “cut and paste” new clauses into old rental contracts tend to yield equipment damage, thefts, liability exposure, financial losses and lawsuits for rental operators.

Adding to the irony is the fact that in the case of a rental contract, it actually costs less to create a new, fully compliant rental contract than it does to try to sort through the provisions of an older contract and modify it to the extent necessary. Having reviewed hundreds of rental contracts throughout the country, I would estimate the typical rental contract in use today provides less than 30 percent of the protections it should.

This, in my opinion, creates a massive legal “hole in the fence” that should be closed as quickly as possible. Take the time to have your lawyer review your contract and make sure it is up to date.

James Waite, Esq., a managing partner of Winters & Waite, Wichita Falls, Texas, and former general counsel at RentX Industries, has prepared hundreds of rental contracts for rental companies throughout the world. He is the author of “Business Management: Contracts and Legal Guidelines,” one of the books published by the American Rental Association (ARA) as part of the Rental Business Line Series. Waite’s rental contract forms also are available online at equipmentrentalcontracts.com or he can be reached through his office at 866-582-2586.

 

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