NGCAA Limited

Contracts for Equipment

Tip for negotiating for new contracts for plant and machinery

Monday 13th of March 2017 09:00

  1. From time to time, any business will require new equipment, plant or machinery, either to replace existing equipment which has seen better days, or to keep up with technological advances. It is important to consider what the best method of each is and what implications each method may have on the business. For the purposes of this brief note, we have considered the methods which are most often utilised.
  1. Hire Purchase is a type of borrowing and you will typically hire the goods and then pay an agreed amount by way of instalments. You are not permitted to dispose of the goods without the lenders authority, otherwise would be committing a criminal offence.
  1. A Conditional Sale is similar to a hire purchase, albeit any agreement would usually state that the goods do not belong to you until the final instalment has been paid.
  1. In both scenarios, the lender may be able to take possession of the goods if there is a default in making payments when they fall due.
  1. The lender would normally require a court order to take back possession of the goods, unless you have paid less than one third of the total contracted amount, in which case a court order is not required.
  1. In the event of repossession the lender will sell the goods at auction and will be used to repay your debt. If the amount realised is insufficient to settle the debt then you will be liable to pay the balance plus any associated court costs. You may be able to obtain more money for the sale of the goods privately, and you should consider enquiring of the lender whether they would be agreeable to this.
  1. You can terminate a hire purchase or conditional sale agreement at any time during the term of the agreement. It is advisable that any notice of termination is given in in writing.
  1. You will be liable to pay all the instalments due at the time of termination the agreement. If the payments are less than half the total price of the goods, you may be liable to make an additional amount up to that amount as the lender will normally be entitled to that amount under the terms of the agreement. However, if you have paid more than half you will not be entitled to a refund but, as a general rule, would not be expected to pay anything more.
  1. There are alternatives to that as set out above. You could acquire the asset outright, or you could take out an unsecured loan which would mean that the acquired asset is not immediately at risk of repossession as a court order would be required followed by a bailiff seizing the goods for recover of payment.
  2. If you are struggling to make payments then you may wish to consider terminating the agreement early, as this may limit the amount that you owe. If you are in doubt, check the original credit agreement, with a qualified professional if need be. The credit agreement is the legal document that governs the relationship between the parties when you bought the goods.


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