Legalese: March 2015

Last month in this space I discussed rental contracts and the important elements that every contract should have. We looked at four of the seven concepts: signing authority, wear-and-tear, insurance and indemnity. This month, I’ll take you through the remaining three.

Remedies on default
Your rental contract should spell out your remedies on default, in other words, what you can do if your customer does not pay. The remedies that could potentially be available to you are subject to negotiation. For example, your customer may agree that if they are late in making a single payment, you have the right to enter onto their property in order to seize your piece of equipment. You ought to describe in detail what exactly constitutes default, so that there is no misconception as to what default means.

In certain situations, especially larger rental contracts, the ability to seize your equipment from your client may be critical. Every province has different personal property registry laws, so you would be well advised to seek out the advice of a lawyer in your own jurisdiction in order to protect your legal rights.

Interest
As I’ve discussed in other columns, you cannot just assume that you get to charge interest on late payments. The annual rate of interest must be agreed to, and shown on the contract. You must also make it very clear when the interest begins and ends. Far from strictly a legal matter, the fact is that if your customer knows and agrees to interest in advance they will be far more likely to pay it. That is good for business!

You must stipulate the annual rate of interest on your rental contracts. This is mandated by federal legislation. If you do not stipulate an annual rate of interest, the maximum annual rate of interest will be limited to five per cent.

On a practical level, your interest charges should be clearly delineated from your other charges. This is not only good for business, but the court will want to know exactly how much interest is being charged.

Assignment
Assignment of a contract involves one party to the contract transferring legal rights and obligations over to another party. As a general rule, you do not want your customers to be able to do this without your prior written consent. You, however, will want the ability to assign contracts without the notice or consent of your customers. For example, you may wish to raise some funds without selling your business, and as such you assign all or part of your accounts receivable to a third party. You would not want to be forced to notify or obtain the consent of your customers in order to do this. Therefore, assignment becomes an issue that you should ensure is properly dealt with in your rental contract.

These examples are just scratching the surface. There are a great many considerations for you in the drafting of your rental contracts. Any time you spend with professional advisors discussing these matters will not be time wasted. You may be surprised that it actually has the benefit of making you more productive and less exposed to certain risks.

Deryk Coward is a partner at D’Arcy & Deacon, a Winnipeg law firm. He is legal counsel for the Canadian Rental Association.