In Australia there is no statute of equipment leasing law, nor is there any code of practice. So, in theory, parties to a lease are free to agree the terms of their bargain every time they enter into a transaction. The main parties are the owner of the equipment, usually called the lessor, and the user of the equipment, usually called the lessee.
However, most of the typical lease terms and conditions (the “Ts&Cs”) have been recognised and understood in Australia since the1950s. Banks, other kinds of financiers and lawyers familiar with the conventions of the leasing market can all be viewed as “gatekeepers”, ensuring accepted leasing and/or loan conventions are observed and followed in the contracts they draw up.
Equipment leases need to contain provisions both consistent with the notion of a financing on the one hand but also reflect a hiring relationship on the other. That is, there must be a clear separation of equipment ownership versus equipment utilisation
A lease contract’s two key commercial clauses are rental and term. At the next level, the key provisions comprise an equipment insurance obligation on the part of the lessee, followed by a set of maintenance covenants, again generally observable by the lessee.
The lease will then move on to representations, warranties and undertakings. Basically, they set the scene for the lease’s commencement. After that come the payment obligations. Probably the key clause here is the “net lease” obligation: that is, the requirement of the lessee to pay lease instalments is absolute and unconditional. Put simply, the lessee is obligated to keep paying no matter what (colloquially known as a “hell or high water” clause).
Such a payment obligation is deemed to be unaffected by any damage to, or non-performance of the equipment. In other words, rental payments must be made on time and in full, without set off or deduction
It is also usual to include a “default interest” provision to give the lessor discretion regarding the lessee’s late or non-payment, as well as incentivising the lessee to pay on time. It is also customary to include a general provision obligating the lessee to pay all costs associated with the lease and the lessor’s ownership of the equipment.
Provisions regarding the equipment itself will then usually follow, dealing with installation, location and maintenance. After that comes a casualty and/or insurance provision which addresses two issues: loss and damage on the one part, and third-party liability on the other part. This clause can be quite lengthy.
After that comes the key clause dealing with events of default and (possibly ensuing) “termination value”. A lessee who wants to recover the lease termination value may only terminate the lease if the lessee has repudiated the contract by breaching a fundamental term. Further, for the termination value to be recoverable, the sum so calculated must not be a “penalty”. Generally, a non-penal status will be achieved if the lease contract’s payments due post-termination are actuarially calculated, that is rebated at an appropriate discount rate. An indemnity provision – to cover all costs associates with the termination – will usually appear at this point too.
Then follows a clause dealing with expiry of the lease term and return of equipment. Provision may also be made for extension of the term, such that the lessee is permitted a “holding over” of the equipment. An extensive standard form clause dealing with the impact of Australia’s relatively recent Personal Property Securities Act (“PPSA”) is likely at this point. It will specify the lease as creating a registrable security interest. It will also oblige the lessee to cooperate with the lessor in facilitating the lease’s registration on the PPSA’s security register, the PPSR.
A miscellany of provisions usually follows, including (i) a general commissions disclosure clause (to preclude any allegation of secret commissions to agents or brokers who may introduce the deal (ii) wide ranging costs, charges and indemnities clauses (iii) overdue payments (if not already covered), and (iv) a provision dealing with the possibility of a lessee signing the lease as trustee of a trust.
Finally, most lease documents contain what is colloquially known as “boilerplate”. This terminology usually includes a general contractual interpretation clause, usually followed by the lease’s key definitions. Then will come provisions at or near one end of the document dealing with such things as:
- severing inappropriate or wrong clauses,
- notice giving protocols,
- waiver of certain terms (where necessary),
- the lessor’s exercise of discretions,
- cumulative remedies,
- further assurances,
- governing law,
- the business day convention, and
- completion of blanks and corrections.
From a lessee’s perspective its only concerns with the lease contract should be that:
- the commercial terms are satisfactory,
- a covenant of quiet enjoyment is included, and
- the operational terms of the lease are practical, such that the contract doesn’t to interfere with the manner in which the lessee conducts its business.
Like real estate leases, equipment leases tend to be wordy documents. Over the years, many attempts have been made to reduce the length of a typical agreement by paring it back to its fundamentals. The wide range of printing technology available today can also make a lease document less threatening to a prospective lessee, although at the other extreme care should be taken with regard to overall legibility, including minimum font size.
Apart from identifying and eliminating terms that are thought to be marginal, the principal technique for reducing length has been to vest considerable discretion in the lessor. This may be desirable from the lessee’s perspective (not having to assimilate so much ‘fine print’ before signing) but the better option for a prospective lessee may be a lengthier document accompanied by specialist legal advice.
Allan McDougall
Consulting Principal
Keypoint Law
October 2025