Legalese: February 2015

If you are anything like most owners of a business, you either inherited a form of contract or drafted one in haste because you had many other things on your to-do list. Written contracts are what govern the relationship between parties, such as a rental company and a customer. If there is a dispute that arises between a rental company and one of its customers, the first place the parties will look is to the written terms and conditions of the contract.

Depending upon the nature of your business and the province in which you do business, there are a multitude of different things to consider when drafting your rental contract. Contracts between private parties are governed by provincial jurisdictions, so the law in one province on a particular issue will not necessarily be the same as another. You should consult with an attorney licensed to practice law in your jurisdiction when formulating and/or revising your contract(s). No legal advice for your individual situation is being offered by this article.

As you are reading this article, you probably don’t even know what your rental contract provides when it comes to things such as signing authority, reasonable wear-and-tear, insurance, indemnity, remedies on default, interest and assignment. We will take a look at the first four of these important contract concepts in this issue, and finish up with the last three next month.

Your rental contract can provide for a representation from the person signing the contract on behalf of the customer that he/she has the legal authority to bind the customer to the terms and conditions of your standard form contract. In addition to having the customer stipulate that he/she has the power to bind the customer, you should ask yourself whether it is reasonable to assume that the person signing the contract possesses the requisite authority. For example, if you were entering into a contract with a customer for the sale of $500,000 worth of equipment, and the person signing was the receptionist, you would be quite right in making further inquiries. One little-known fact is that that company information is, generally speaking, available for your inspection at your provincial companies office.

Reasonable wear-and-tear needs to be defined in your contract. Examples work well to help your customer appreciate the types of things that constitute wear-and-tear and the things that won’t count. You can often avoid leaving up to a court to decide disputes about damage if your customer simply accepts the fact that it was written in the contract. For example, if you rent snow machines and a common problem is that your customers return them with scuffs and paint chips, put something in your contract like, “Scuffs and paint chips do not fall under reasonable wear-and-tear. You will be charged for the cost to repair of scuffs and paint chips.”

Insurance is admittedly not the most exciting topic, but it could end up saving your business. You should have provisions in your contract dealing with the fact that your customers must carry their own insurance. The wording of these provisions are quite technical and really vary from province to province. Your insurer and/or your lawyer will be able to help you in this regard. A properly worded clause in your contract could save you from being required to submit an insurance claim to your insurer with the resultant increases in premiums, not to mention the cost of the actual deductible.

An indemnity, distilled to its legal essence, is an agreement from a person (such as your customer) to reimburse you and generally cover you from any claims advanced against you by a third party. As an example, say you rent jackhammers and your customer takes out the electricity in the neighbourhood. The business owners could sue you, claiming that your faulty equipment caused them to lose business. In that scenario, if you had your customer’s signature on an effective indemnity clause, your customer would be obliged to pay your costs of defending such an action as well as any court judgments. Remember, though, that an indemnity is only as good as the person from whom it is  received. If the person or other legal entity does not have means to cover your losses, you will not be helped very much.

Those are some tips on signing authority, wear-and-tear, insurance and indemnity. Next issue, I’ll discuss remedies on default, interest and assignment.