What to Know About a Rental Agreement when Renting Compact Equipment

You know renting equipment makes sense. You know what machines you need to rent. But do you know all the details about what is involved when renting compact machines?

There are several types of rental outlets, from small independent rental companies and large national rental houses to local equipment dealerships. All are great avenues and, depending on individual company characteristics, offer a variety of machines and rental options to meet needs. While most thought is put into choosing the right machine, it is wise for contractors to take the time to understand the steps and pieces involved in the rental process itself, too.

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As an equipment dealer that also rents compact equipment, there are a handful of frequently asked questions we get when it comes to renting. Here is a step-by-step look at the rental process, based on five frequently asked questions, and a deeper look at what’s included in a rental agreement.

1. How Do Rental Rates Vary by Duration?

Once a machine is chosen, the first step in a rental agreement is to determine the length of time, as that will factor into payments. Smaller rental centers may offer half-day or even hourly rates, a great option for those who need it. However, most professionals will need more than a day with the machine. Rates typically go down as the length of rental goes up, making it advantageous to have a good estimate of the time needed with the machine. Consider this: A machine might have a rental rate of $200 per day and weekly rate of $800. Assuming machine utilization six of those seven days, a renter can save $400 in one week by planning ahead with an agreement versus renting per day.

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Expanding that even further, say the monthly rate is $2,400. By renting for a full month instead of on a weekly rate, the customer essentially is getting a full week for free. It is easy to see how quickly it can pay off to plan ahead and have a good idea of how long the rental is needed. That’s not to say the timeframe is set in stone.

“This is the equipment industry so there are going to be unpredictable factors,” Tory Williams, general manager of RDO Equipment Co. in Chandler and Phoenix, Arizona says. “A project may take longer than anticipated. Maybe a machine worked well and the customer wants to use it on another job.” Williams, a former sales manager focused on compact construction equipment, adds that because of this need for flexibility, some companies offer options for extending the agreement.

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2. How Long to Rent Before Considering Purchase?

This brings up a common question when it comes to length of a rental: How long can — and should — a machine be rented? Most outlets will tailor an agreement to suit any length of time. At RDO, we will let a company rent forever if that is what it would like to do. Just as some customers only want to buy equipment, never rent it, there are others that only want to rent, not buy. There is no “sweet spot” for how long a machine can be rented before it becomes more cost-effective to buy, it depends on each individual business model, but a general rule of thumb we use is 50 percent – if a customer is going to rent for more than 50 percent of the year, we believe it is worth looking at ownership.

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By renting for a full month instead of on a weekly rate, the customer essentially is getting a full week for free. It is easy to see how quickly it can pay off to plan ahead.

3. Are There Options to Purchase a Rental?

Although rental may be the only thought for some, there are plenty of instances where companies decide it is worth the investment to purchase. Often, this comes after using the machine, seeing its utilization rate onsite, or because of expanding and diversifying a company’s work. While smaller rental centers commonly do not sell machines, larger ones, including equipment dealerships, may offer rent-to-purchase agreements. An advantage of rent-to-purchase is that rental payments go towards the purchase of the machine, whereas with regular rental payments, no equity goes into the machine. It is important for contractors to know about this option and it is strongly recommended to consider it before signing a rental agreement.

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If purchase is a possibility, it is a good idea to be prepared with financing. While some rental centers, dealerships included, will have options available to help with financing, others will not. It is wise to do that work in advance and have it in place if and when it is needed.

4. What Are the Payment Options for a Rental?

The rental payment structure will largely depend on the length of time on the rental machine. Longer agreements are typically set up as a recurring monthly payment, another reason why establishing a length of rental, as accurately as possible, is a smart move. A typical rental agreement is written so that it will keep extending and billing automatically. In the event a rental extends long past the original date, a good, trustworthy equipment partner will adjust the contract and billing to give a fair deal.

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Consider a company renting for a short time and being billed weekly. A weekly rate is more expensive than a monthly one. If the agreement continues, the fair thing to do is restructure the agreement to begin billing the monthly rate instead of weekly. A good company will notice that and do the right thing, but every contractor should be aware in case the rental center is not proactive.

Some rental centers will allow one-time payment by credit card, while others require setting up an account with a credit application and card on file. The upside of completing the credit application is that insurance is part of the process, eliminating the need to pay separate premiums outside of the rental. It also gives the renter a smoother experience when it comes to parts, service, and other support. “Some rental outlets have access to a healthy stock of parts inventory as well as various options for service and support of the machine,” Williams says.

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5. How Are Attachments Rented?

There are very few instances when a compact machine is rented without attachments. After all, the key to a productive machine — and a happy, repeat customer — lies in the variety of attachments. In most cases, renters have two options for the attachments piece of the agreement. Attachments can be included as part of the machine rental, for example, renting a compact track loader with a bucket. If it is decided that additional attachments are needed or perhaps a specific one is needed for only a day or two, it can be done on a separate agreement. This option also works for companies that own a machine but want to rent a specialty attachment; an attachment-only rental agreement is an option.

Details of the Agreement

Now, the nitty gritty: what all is included in the actual rental agreement. In addition to everything already discussed, here are a few things to know about the agreement.

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The agreement structure varies a bit based on the rental house. At RDO Equipment, first a master rental agreement is set up, then addendums as needed.

The master agreement includes all the legal info. Insurance requirements would be noted here. While they will vary, RDO, for example, requires proof of General Liability and Property insurance for demo, loaner rental, and rent-to-purchase agreements.

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The master also spells out that the renter knows how to safely operate, transport, and maintain the machine, as well as what happens in the event of damages to the machine, and any adjacent property or other equipment. If initial operator training or transport is needed, the agreement will include that. It also clarifies what maintenance is the responsibility of the renter and what is taken care of by the rental center or dealership. Basic daily maintenance typically is on the renter while more significant preventative maintenance is the responsibility of the center or dealership.

Finally, an agreement will clarify that rental payments are not being applied to a future purchase of the machine, unless it is a rent-to-purchase agreement.

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The addendum notes the equipment-specific details like the model number and monthly payment, and that the renter accepts the condition and will bring back the machine in like condition. The monthly payment portion will have a bit more info than the number itself.

“Every company has additional costs built into rental agreements, like taxes and fees, so it is important to ask about all costs outlined in the agreement and have the full picture of what is being charged,” Mike Fenton, RDO general manager of rental, advises.

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To have the best rental experience, be prepared to know all the details behind the process of renting equipment.

Dennis Howard is vice president of equipment for RDO Equipment Co.

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