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Avoid being sued with a well-written rental contract

October 1st, 2018 / By: / Business, Management

How to keep from being sued by making yourself the least appealing target in the group.

A client recently asked me what seemed like a simple question: “How can I keep from getting sued? Aside from the obvious answer (which necessarily involves either a fortune or a gravestone), my answer, with some explanation, was: “Make yourself the least appealing target of what will likely be several potential defendants.”

It’s helpful to know how the plaintiff/lawyer agreement works because it affects the likelihood of whether or not the lawyer may take a particular case.

Most plaintiffs’ lawyers work, at least partly, on a “contingency” basis. That means they only get paid a portion of what they win for their clients—meaning they only get paid if they win. They also often advance the costs of filing and pursuing lawsuits. This can run to many thousands of dollars, particularly when a case involves multiple witnesses, experts (who usually must be paid, sometimes a great deal), depositions, interrogatories, production(s) of documents, etc. They therefore take a potentially expensive gamble every time they agree to represent a new plaintiff.

This, of course, makes it extraordinarily painful (i.e., costly) for them to lose.

It therefore also motivates them to consider the economics of each case carefully. And that can work in favor of rental operators—but only those who properly prepare.

Why? Because that means plaintiffs’ lawyers must:

  • Decide what each potential case is worth—in short: (i) how much money a judge and/or jury is likely to award the plaintiff if he/she wins at trial; and (ii) how much money a case can be settled for based on the threat that a victory at trial would yield a larger verdict (remembering that the vast majority of cases never reach trial, and that settling is far less expensive, time consuming and risky for the plaintiff than going to trial).
  • Determine which “claims” (for example, claims for economic losses, personal injuries, property damage, emotional distress and/or other losses) are most likely to generate the greatest recovery(ies).
  • Decide which plaintiff(s) is/are most likely to be sympathetic to a judge or jury, considering a range of legal,
    financial, sociological and demographic issues (think of children, the elderly and brides-to-be, among others).
  • Calculate which of the potential claims is/are most valuable and which of the potential defendants is/are most likely to be held liable.
  • Pursue only the easiest target(s). Importantly, in any given case, there can be an array of potential claims and/or defendants (e.g., a manufacturer, distributor, broker, property/site owner, hotel management company, event planner, rental company, equipment lessee, event attendee(s), etc.).
  • Avoid “hard” targets (those from whom it might be difficult to recover, or who might countersue) to the extent possible.
  • Recover as much as possible as quickly and inexpensively as possible from the easiest targets.

When you consider these objectives, two things become apparent:

  • If you have little or no protection (for example, through your rental contract) and substantial insurance or assets, you are more likely to be sued.
  • The greater your protections and/or ability to fight back, the less likely you are to get sued.
How to be the “least appealing target” in the group

Start with your rental contract: I review hundreds of rental contracts each year. Almost all of them fall so far short of providing adequate protection as to be dangerous, largely because they deceive their own rental company owners into believing they’re protected. But they also often include language that actually creates unanticipated obligations for those rental companies. In one extreme example, a rental company realized, at trial, that its rental contract (copied from a competing business) contained damage waiver language, despite the fact that the rental company had never sold damage waiver. After hearing testimony about how the customer had destroyed the rental company’s equipment, the court ruled against the rental company on its customer’s claim that he “thought he had purchased damage waiver” (despite the fact that he hadn’t paid for it) because he hadn’t “declined” it as required by the rental contract’s damage waiver clause. The cost to the rental company: $40,000.

Given the vast array of changes to the laws governing equipment leases over the 25 years since I’ve been in the business (think of evacuation plans, building inspection and code requirements, safety requirements for inflatables, theft of services laws, new taxes, and many more), it would be impossible to list all of the requirements for creating a proper rental contract in this article. Nonetheless, here are ten of the most important in my opinion:

  1. Agreement to rent (incredibly, over 70 percent of rental contracts fail to say the transaction is a rental).
  2. Customer’s agreement to pay all rent and other amounts due (e.g., deposits, late returns, items returned unclean, and items lost, damaged or stolen).
  3. Use requirements/restrictions (at least a requirement that the items be used for the manufacturer’s intended purpose and in compliance with applicable laws).
  4. Notices of specific hazards (e.g., tents, inflatables, cooking and heating equipment, etc.).
  5. Damage waiver provision (if applicable; if not, delete it).
  6. Customer’s acknowledgment of receipt, examination and acceptance of the rented item(s).
  7. Warranty waiver (a waiver of the legally “implied” warranties you will be deemed to have made, even if you say nothing about your equipment).
  8. Indemnity, defense and hold harmless (the customer’s agreement not to sue you, and to reimburse you for damages, costs and attorneys’ fees if you get sued by someone else).
  9. Default/remedies (including interest, attorneys’ fees, collection costs, and critically, the right to repossess your equipment).
  10. Credit card authorization (note: this will not stop a customer from seeking to reverse a charge, but it will give you the legal right to pursue it).

Carefully following these steps can spell the difference between a lengthy and expensive trial (perhaps including a multi-million dollar verdict against you), and never being sued in the first place. Taking a few simple precautions can save you a fortune. My advice is to eliminate as many potential liability issues as possible immediately (before this costs you thousands or perhaps millions of dollars).

James R. Waite led an educational session on contract language for tent rental companies at Tent Conference 2018. James R. Waite, Esq., is a corporate and transactional attorney with more than 25 years of experience in buying, selling and leasing businesses, equipment, aircraft and real estate. In that time, Waite has served as general counsel, CEO, CFO and COO for companies ranging from airlines to equipment lessors. He wrote the American Rental Association’s book on rental contracts, publishes a monthly article entitled “Legally Speaking” in Rental Management magazine, and routinely presents at industry association local and national conferences. Waite is a veteran of the United States Air Force, has a BBA in finance from the University of Texas at San Antonio, a Juris Doctor from St. Mary’s University, and an MBA from Northwestern University. For more information, call 866-582-2586 or visit www.equipmentrentalcontracts.com.

For more expert information essential to the success of your business, be sure to attend IFAI Tent Expo 2019. Go to www.ifai.com/tentexpo for registration information.

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