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JANUARY 2013 issue of
Rental Management

Risk Management: Your rental contract should work as hard as you do
01/14/2013

The right signed document can play defense and offense

Every component of a rental business works hard. Owners pour their hearts and souls into it, wearing multiple hats and making untold sacrifices to make it successful. Employees put in long hours delivering, installing, washing and repairing equipment, not to mention meeting the needs of demanding customers. The equipment also works hard, getting more use in rental than it would if it were owned by the end user. Possibly the hardest-working component of a rental business, however, is the least tangible — the rental contract.

Sure, a contract is on paper and usually physically signed, but its significance is in the concepts conveyed in its clauses, which play defense, offense and common sense all at the same time.

Insurance people often call the contract the rental company’s “first line of defense.” That’s because, in investigating a liability claim, we
look to the contract first. Even when the rented equipment is in perfect working order or brand new and the renter is an expert in its operation, accidents still happen.

In our culture today, people expect compensation for accidents, so a good contract can not only protect a rental company from liability for accidents completely out of its control — like a sudden windstorm that brings a tent down onto new cars at a dealership — it also can limit or transfer liability for a rental company’s negligence, such as when an employee damages a renter’s vehicle while loading equipment.

In the absence of a compelling contract, compensation is often owed by the rental company, even when its only “infraction” is that of owning the equipment.

A good rental contract also plays offense, at least in terms of enforcing the renter’s responsibility for damage to the equipment. Standard legal principles obligate renters to take “reasonable” care of equipment while it’s in their possession — such as using it as it’s intended, making sure it has oil and not leaving it out where it can be stolen. A rental contract can alter the obligation to something much more stringent, so that the renter is responsible for any damage to the equipment whatsoever, even if it is completely out of the renter’s control.

For example, in the absence of contract language to the contrary, a renter would not be responsible for damage to towed equipment caused by another motorist who runs a red light. Conversely, the same renter in the same circumstance who signs a well-crafted contract would not only be responsible for the damage, but would owe for a new replacement machine in the event it isn’t repairable, as well as lost rent until the machine is repaired or replaced.

Yet a third function of a contract is to enforce legally what should be implicit in the rental transaction, but often isn’t enforceable without the explicit written acknowledgement by the renter — that the transaction is a rental not a sale, that it is in exchange for a fee and that the equipment must be returned to the rental company, among other seemingly common sense conditions.

For example, without explicit contract language, a renter could claim he thought the rental company “sold” him the equipment for the price of the rental fee or that he paid the rental fee in full when he picked it up, even though he kept the equipment longer than the rental period.

Given the importance of a contract to a rental business, the American Rental Association (ARA) has long offered members rental contract resources. The most recent is the updated Business Management: Contracts and Legal Guidelines authored by James Waite, Esq., a managing partner of the law firm Winters and Waite, Wichita Falls, Texas. The guide provides explanations of the laws that affect rental transactions, the types of claims that are brought against rental companies and how contracts can work in rental companies’ favor. It also provides sample clauses drafted to be as protective as possible for the widest variety of legal jurisdictions.

In his practice, Waite consults with rental store clients directly to help them develop and improve their contracts, so the contracts work as hard — and as effectively — as the other components of their businesses. Through his website, equipmentrentalcontracts.com, Waite has expanded his services to include an analysis of existing contracts and suggestions for improvement, ready-to-use contracts for specific types of rental companies and custom contracts written specifically for individual companies. He also keeps up with the ever-changing legal environment and makes sure the contracts he provides reflect changes in laws and state-specific requirements.

ARA Insurance supports Waite’s efforts because good contracts mean fewer claims, reduced claim payments and ultimately lower insurance costs to rental companies. ARA Insurance provides the ARA contract guide at no cost to ARA Insurance customers and has negotiated reduced prices on Waite’s other contract services. In addition, ARA Insurance will offer a drawing for a custom contract — worth $1,500 — at The Rental Show. Attendees need to bring the postcard received in the mail to the ARA Insurance booth No. 731 to be entered in the drawing.

Maura Paternoster is risk manager for ARA Insurance in Kansas City, Mo. For more information, call 800-821-6580 or visit  ARAinsure.com.
 

 

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