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Smarter Finance USA Blog

What is Interim Rent on an Equipment Lease?

Posted by Rob Misheloff

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So, you’re in the middle of leasing equipment for your business.

And, looking at the paperwork, you notice an “extra” amount that you have to pay.

What is this “interim rent” charge?

Many of our customers wonder if it’s just a way to squeeze extra money out of them.

So… is it just a way to juice you for extra money?  

…or is it totally legit?

When are Interim Payments Justified?

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First, let’s go over what the term “interim rent” actually means.

First let’s go over the nerdspeak way that it’s often described:

Many lease agreements contain an interim provision enabling the lessor to charge for the use of the lease property for the time period between the actual acceptance date and the date on which the base term of the lease commences”

Ok… now let’s decode that into English.

Imagine you lease $50,000 worth of business equipment.

Let’s also assume your payments are $1,100 monthly.

Let's say monthly payments will be due on the 15th of the month, but you actually take delivery of your equipment on the 11th.

So, that’s 4 extra days.

That means you’ll end up paying around $147 extra.

($1,100 multiplied by 4/30).

Big deal, right?

The truth is, most interim provisions in leasing contracts are trivial like this.

What's Wrong With Paying a Few Extra Days of Rent?

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When complaints occur, it’s usually not because of a few extra days.

Unfortunately, some companies play games with due dates to maximize the amount of interim rental payments.

For example, could you imagine signing a lease with quarterly payments, and then finding out you got slammed with an extra month (or more) worth of payments?

That’s pretty sleazy.

While this kind of abuse does happen, it’s actually rare.

You should always work with a company that will treat you honestly.

That includes full disclosure about any provisions, including paying extra rental.

However, in some cases, you could pay rent for several months, and it would be totally legitimate.

Here’s When You Should Expect Interim Payments:

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For an easy example, let’s consider financing packaging equipment.

Packaging equipment is sold all customized, and often costs hundreds of thousands of dollars.

(Sometimes way more than that).

It can also take 6-9 months or more to deliver an order.

Now, if I’m the packaging equipment seller, am I going to start building your customized system (that is hard to sell to someone else) just hoping I get paid in six months?

Ain’t gonna happen, right?

Your seller is going to ask for progress payments at certain milestones.

Maybe 20% to get started, another 20% in 90 days, etc.

Who is going to make those progress payments?

You?

Usually, it is the leasing company that pays.

…And…

While your equipment is being built… the leasing company has made an unsecured loan to your equipment seller.

Most banks won’t even approve a contract with progress payments. That’s because all sorts of problems happen that can unwind a deal.

Maybe you lose the big customer you needed that new system for.  

Or maybe you pick a dud vendor.

The simple fact is… making payments before a system is built is risky.

Leasing companies eat risk for breakfast… but not for free, right?

There will be interim charges on most long term orders with progress payments… though the actual amounts may vary.

How to Avoid Problems with Interim Rental Fees

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It’s really simple.

Just ask.

Some equipment leases have interim rental provisions… and some don’t.

Truthfully, in most cases it’s not worth worrying about – as long as you can get clear answers.  

If the leasing company and/or person is honest and upfront with you… you’re not going to have anything to worry about.

However, if you get a sense that person is evasive –tread carefully.

We’re always willing to answer any and all questions about interim rent if it exists in a leasing contract.

You should expect that from any leasing company you work with, right?

Need Your Equipment Leasing Questions Answered?

Call us at (866) 631-9996 or click in the picture below.

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Topics: Leasing

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