Subject: Requested revisions and clarifications to Equipment Finance Agreement
Hello,
Thank you for sending the Equipment Finance Agreement. I reviewed the business terms carefully, and before signing I need to clarify and revise several points that create too much risk for my business and guarantor.
The main issues for me are:
1. Non-cancelable / hell-or-high-water
The current language makes payment absolute even if the equipment is defective, destroyed, never delivered, or never functions. For commercial kitchen and refrigeration equipment, that is too much operational risk for us to absorb. I need payment obligations to become unconditional only after delivery, installation, and written acceptance of conforming, operational equipment.
2. End-of-term structure and evergreen renewal
This appears to be a nominal buyout transaction because the end-of-term purchase price is $1.00. If that is the intended economics, title should transfer automatically for $1.00 at the end of the 60-month term once all scheduled payments are made. I cannot accept a structure where missing a 90-day notice deadline causes automatic renewal for successive 12-month terms at the same monthly payment. Please remove the evergreen renewal, or at minimum convert it to month-to-month with 30 days' notice and require reminder notices from you before any deadline.
3. Default remedies
The current default section is too aggressive. Acceleration of all remaining payments plus residual, repossession without notice, 18% default interest, 10% late fees, attorneys' fees, and no credit after repossession is not workable. I need:
- notice and cure periods,
- a lower late fee and default rate,
- credit for all repossession, resale, insurance, and salvage proceeds,
- and confirmation that there is no double recovery.
4. Residual amount
Sections 6 and 7 refer to payment of the residual, but Section 5 says the purchase option is $1.00. Please confirm in writing that the residual is $1.00 for all purposes, including casualty and default calculations, or revise the agreement to remove any ambiguity.
5. Casualty / stipulated loss value
If the equipment is lost, stolen, or destroyed, the current formula requires all remaining payments plus residual with only a 3% discount. That is too heavy for a $1 buyout structure. Please revise the casualty payoff to a present-value formula that credits all insurance proceeds and does not add any residual beyond $1.00.
6. Warranty and vendor risk
Since the agreement disclaims all warranties and treats this as a finance lease, I need an express assignment of all manufacturer and vendor warranties and claims, plus your cooperation in enforcing them. We also need confirmation that payment obligations do not become unconditional before acceptance.
7. Personal guaranty
The guaranty is currently unlimited as to all obligations under the agreement, including accelerated payments, default interest, late fees, and attorneys' fees. I need the guaranty either removed or capped, with a burn-off after a period of timely payments.
8. Security interest / cross-collateralization
Please limit the collateral to the specific equipment financed under this agreement and remove the cross-collateralization with any other agreements between the parties.
9. Assignment / waiver of defenses
I cannot agree that an assignee takes free of all defenses, claims, and setoffs while I remain obligated to pay unconditionally. Any assignee should take subject to my claims and defenses, especially for non-delivery, fraud, payment disputes, and failure to credit proceeds.
10. Fees and prepayment
Please provide a complete all-in fee schedule, including the property-tax administration fee and any other recurring or end-of-term charges. I also need a clear voluntary prepayment / payoff provision with a transparent formula.
If you are open to it, please send back a revised draft reflecting these points. If easier, I am happy to review a redline or discuss by phone.
Best,
Lessee
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