Equipment Lease Agreement (California)

CALIFORNIA EQUIPMENT LEASE AGREEMENT

(UCC Article 2A as enacted in California — Cal. Com. Code Division 10)

California Drafting Notes

1. Article 2A vs. Article 9. A true lease is governed by Cal. Com. Code Division 10. A "lease intended as security" (disguised secured sale) is governed by Cal. Com. Code § 1203 — the bright-line test — and by Division 9. The classification affects perfection, remedies, and bankruptcy treatment. Use the precautionary UCC-1 filing below where classification is uncertain.

2. Statute of Frauds (Cal. Com. Code § 10201). Leases with total payments of $1,000 or more must be in writing signed by the party against whom enforcement is sought.

3. Finance Lease (Cal. Com. Code §§ 10103(a)(7), 10209, 10407). A transaction qualifies as a finance lease only if the elements in § 10103(a)(7) are met. Supplier warranties extend to the lessee as stated in § 10209. In a finance lease that is not a consumer lease, the lessee's promises become irrevocable and independent upon acceptance under § 10407.

4. Liquidated Damages (Cal. Civ. Code § 1671(b)). In non-consumer contracts, liquidated damages are presumptively valid unless shown to be unreasonable under the circumstances existing at the time the contract was made.

5. Unconscionability (Cal. Civ. Code § 1670.5; Cal. Com. Code § 10108). Courts may refuse to enforce unconscionable lease provisions. Commercial parties generally face a higher burden than consumers.

6. Self-Help Repossession (Cal. Com. Code § 10525). Upon lessee default, lessor has the right to take possession of the goods without judicial process provided it can be done without breach of peace — identical standard to UCC § 9609.

7. Sales/Use Tax (Cal. Rev. & Tax. Code §§ 6006.1, 6391). In California, "rentals payable" from a lease of tangible personal property are generally subject to sales/use tax. Lessor should determine the appropriate tax treatment and specify it in the lease.

EQUIPMENT LEASE AGREEMENT

This Equipment Lease Agreement (this "Lease") is entered into as of [__/__/____] (the "Effective Date"), by and between:

LESSOR: [LESSOR LEGAL NAME], a [________] organized under the laws of [________], with its principal place of business at [________________________________] ("Lessor"); and

LESSEE: [LESSEE LEGAL NAME], a [________] organized under the laws of California, with its principal place of business at [________________________________] ("Lessee").

Each a "Party" and collectively the "Parties."

1. Definitions

Capitalized terms used herein have the meanings given them in Cal. Com. Code § 10103 unless otherwise defined.

"Equipment" means the tangible personal property described on Schedule A, together with all parts, accessories, replacements, and accessions, whether now owned or later acquired.

"Lease Term" has the meaning set forth in Section 3.

"Rent" has the meaning set forth in Section 4.

"Supplier" means [SUPPLIER NAME], if any, from whom Lessor has acquired or will acquire the Equipment.

2. Lease of Equipment

Lessor leases to Lessee, and Lessee leases from Lessor, the Equipment described on Schedule A, subject to the terms of this Lease.

2.1 Finance Lease Designation. ☐ Check if applicable. If checked, this Lease is a Finance Lease as defined in Cal. Com. Code § 10103(a)(7). Lessee has, before signing this Lease, received and approved the contract by which Lessor acquired (or will acquire) the Equipment from Supplier, and Lessee has received a statement designating the promises and warranties made by Supplier to Lessor pursuant to Cal. Com. Code § 10209(a)(2).

2.2 Supplier Warranty Pass-Through (Finance Lease). If this is a Finance Lease, Lessor assigns to Lessee during the Lease Term the benefit of all Supplier warranties, indemnities, and rights, and Lessee may enforce such warranties directly against Supplier under Cal. Com. Code § 10209.

3. Lease Term

The Lease Term begins on the Delivery Date and continues for [____] months. The "Delivery Date" is the date on which Lessee accepts delivery of the Equipment by signing the Certificate of Acceptance (Schedule B). Acceptance is governed by Cal. Com. Code § 10515. In a nonconsumer finance lease, § 10407 makes Lessee's promises irrevocable and independent upon acceptance.

4. Rent and Payment

4.1 Rent. Lessee shall pay Lessor Rent of $[____________________] per [month / quarter], in advance, commencing on the Delivery Date and continuing on the [first / last] day of each [month / quarter] for the duration of the Lease Term.

4.2 Security Deposit. $[____________________], to be returned without interest within thirty (30) days after the end of the Lease Term, less any amounts applied to cure Lessee defaults.

4.3 Late Charges. Rent not received within [____] days of the due date will bear a late charge equal to the lesser of [____]% of the unpaid amount or the maximum rate permitted under California law. Unpaid Rent also bears simple interest at [____]% per annum, or the maximum rate permitted by applicable law, whichever is lower. The parties must complete the interest rate before signing.

4.4 Taxes (Cal. Rev. & Tax. Code §§ 6006.1, 6391). Lessee is responsible for all California sales, use, and property taxes assessed on the Equipment and Rent during the Lease Term. Lessor shall invoice Lessee for sales/use tax as required.

4.5 Hell or High Water (Finance Lease). In a Finance Lease, Lessee's obligation to pay Rent is absolute and unconditional, not subject to setoff, counterclaim, recoupment, defense, or any other right Lessee may have against Lessor or Supplier, pursuant to Cal. Com. Code § 10407. This provision is binding under § 10407 because it is a commercial finance lease.

4.6 Place of Payment. All payments shall be made by wire transfer or ACH to: [BANK INFO].

5. Delivery, Installation, and Acceptance

5.1 Delivery. Equipment shall be delivered to [____________________] on or before [__/__/____].

5.2 Inspection and Acceptance. Lessee shall have [____] business days from delivery to inspect the Equipment and execute a Certificate of Acceptance. Signature of the Certificate constitutes acceptance under Cal. Com. Code § 10515. Failure to reject within the inspection period constitutes acceptance by operation of Cal. Com. Code § 10515(b).

5.3 Risk of Loss (Cal. Com. Code § 10219). Except in a finance lease, statutory risk of loss remains with Lessor unless this Lease lawfully allocates it otherwise; in a finance lease, risk of loss passes to Lessee. If risk is to pass and this Lease does not state when, § 10219(b) supplies different rules for carrier shipments, destination contracts, bailees, receipt, and tender. Selected allocation: [________________________________].

6. Use, Possession, and Care

6.1 Permitted Use. Lessee shall use the Equipment only for lawful commercial purposes in the ordinary course of its business at the location specified on Schedule A.

6.2 Location; California Situs. Lessee shall keep the Equipment at the California location specified on Schedule A and shall not remove it from that location without Lessor's prior written consent. Lessee represents that Lessee is a "registered organization" organized under the laws of California for purposes of Cal. Com. Code § 9307, and its state of location is California.

6.3 Maintenance. Lessee shall, at its sole expense, maintain the Equipment in good operating condition, repair, and appearance, reasonable wear and tear excepted, and in compliance with all manufacturer recommendations and applicable California law.

6.4 Alterations. No alterations without Lessor's prior written consent. All alterations, improvements, and accessions become part of the Equipment and Lessor's property.

6.5 Inspection by Lessor. Lessor may, upon reasonable notice, enter Lessee's premises during business hours to inspect the Equipment.

7. Title and Identification

7.1 Lessor's Title. The Equipment is and shall remain the personal property of Lessor. Lessee has only a leasehold interest. Lessee shall affix Lessor's ownership labels and shall not permit any UCC filings (other than Lessor's precautionary filing under Cal. Com. Code § 9505) or liens against the Equipment.

7.2 Precautionary Financing Statement (Cal. Com. Code § 9505). Lessor may file a precautionary UCC-1 financing statement with the California Secretary of State concerning the Equipment. By signing this Lease, Lessee authorizes the filing in a signed record under Cal. Com. Code § 9509(a)(1). Under § 9505(b), the filing alone does not determine whether this Lease creates a security interest.

7.3 No Lessee Encumbrance. Lessee shall not sell, sublease, assign, mortgage, pledge, or otherwise encumber the Equipment or its rights hereunder without Lessor's prior written consent. Any such attempted transfer is void.

8. Warranties and Disclaimers

8.1 Lessor Warranties. Except as expressly stated in this Section 8, Lessor makes no warranties, express or implied, including without limitation any implied warranty of merchantability (Cal. Com. Code § 10212), any implied warranty of fitness for a particular purpose (Cal. Com. Code § 10213), or any warranty against infringement (§ 10211). THE EQUIPMENT IS LEASED "AS IS, WHERE IS" WITH ALL FAULTS.

8.2 Finance Lease Pass-Through. In a Finance Lease, Lessee's sole remedy for Equipment defects is against Supplier under the manufacturer's warranty, pursuant to the pass-through in Cal. Com. Code § 10209.

8.3 Conspicuous Disclosure. The above disclaimers are conspicuous in compliance with Cal. Com. Code § 10214.

9. Insurance

Lessee shall maintain, at its sole expense, during the Lease Term:

• Commercial general liability insurance of not less than $[________] per occurrence;
• Property / all-risk insurance covering the full replacement cost of the Equipment, naming Lessor as loss payee and additional insured;
• Workers' compensation insurance as required by Cal. Lab. Code § 3700; and
• Such other coverage as Lessor may reasonably require.

Certificates of insurance shall be delivered to Lessor within ten (10) days of the Effective Date and annually thereafter.

10. Indemnification

To the fullest extent permitted by California law (and subject to Cal. Civ. Code § 2782 for construction-related indemnities and Cal. Civ. Code § 1668 (no indemnity for fraud, willful injury, or violation of law)), Lessee shall indemnify, defend, and hold harmless Lessor from and against all claims, losses, damages, liabilities, and expenses (including reasonable attorney fees) arising from or related to Lessee's possession, use, operation, or maintenance of the Equipment, except to the extent caused by Lessor's gross negligence or willful misconduct.

11. Default

11.1 Events of Default. Each of the following is an "Event of Default" under Cal. Com. Code § 10523(a) and this Lease:
(a) Lessee's failure to pay any Rent within [____] days after its due date;
(b) Lessee's breach of any other material obligation under this Lease and failure to cure within [____] days of written notice;
(c) Lessee's insolvency or assignment for the benefit of creditors; provided that a bankruptcy filing or appointment of a trustee or custodian is not by itself an enforceable termination or default trigger to the extent prohibited by 11 U.S.C. § 365 or other applicable law;
(d) Any attempted transfer of the Equipment or Lessee's rights hereunder in violation of Section 7.3;
(e) Any material misrepresentation in Lessee's representations and warranties;
(f) Cross-default under any other agreement between Lessor and Lessee.

12. Remedies

12.1 Lessor's Remedies (Cal. Com. Code §§ 10523–10532). Upon an Event of Default, Lessor may exercise any one or more of the following cumulative remedies:

(a) Cancel the Lease (§ 10523(a)(1));
(b) Proceed to take possession of the Equipment by self-help, without judicial process, provided this is done without breach of peace (§ 10525(c));
(c) Dispose of or re-lease the Equipment and recover damages under §§ 10527–10528;
(d) Recover damages, if available, measured under Cal. Com. Code § 10528, including accrued and unpaid Rent and the statutory present-value comparison of remaining Rent and market Rent, with required credits and offsets;
(e) Recover liquidated damages as provided in Section 12.2;
(f) Pursue any other right or remedy available at law or in equity.

12.2 Liquidated Damages. The Parties agree that, in the event of default, actual damages would be difficult or impossible to ascertain. Accordingly, upon default Lessee shall pay, as liquidated damages and not as a penalty, an amount equal to: (i) all accrued and unpaid Rent, late charges, and taxes; plus (ii) the present value (discounted at [____]%) of all remaining Rent for the Lease Term; plus (iii) the "stipulated loss value" of the Equipment as of the default date set forth on Schedule C; less (iv) the net proceeds of any re-lease or sale of the Equipment, net of reasonable costs of repossession and disposition. This provision is enforceable under Cal. Civ. Code § 1671(b), which presumes liquidated damages in commercial contracts are valid unless unreasonable at the time of contracting.

12.3 Right to Peaceful Repossession. Lessee grants Lessor and its agents the right to enter Lessee's premises to repossess the Equipment, without liability for trespass, provided such entry is without breach of peace, pursuant to Cal. Com. Code § 10525(c).

12.4 Attorney Fees. The prevailing Party in any dispute under this Lease shall recover reasonable attorney fees and costs. Cal. Civ. Code § 1717 shall apply to ensure mutuality regardless of the drafting.

12.5 Interest. Overdue amounts bear interest at the rate selected in Section 4.3, subject to applicable law. Cal. Civ. Code § 3289(b)'s 10% default applies after breach only when a qualifying contract does not stipulate a legal interest rate.

13. End of Term; Return

Upon expiration or termination of the Lease Term, Lessee shall, at its sole expense, return the Equipment to Lessor at [________________________________] in the same condition as delivered, reasonable wear and tear excepted. Lessee shall be liable for all costs of deinstallation, packaging, and freight. Any delay in return results in holdover Rent at [____]% of the last regular Rent, prorated daily.

13.1 Purchase Option. ☐ Check if applicable. Lessee has the option to purchase the Equipment at the end of the Lease Term for [$[________] / fair market value]. Exercise of the option requires written notice at least [____] days before the Lease Term expires.

14. Representations and Warranties of Lessee

Lessee represents and warrants that: (a) it is duly organized and in good standing under California law; (b) it has full power and authority to enter into and perform this Lease; (c) the Equipment will be used solely for business purposes; (d) no consent or approval is required from any third party; and (e) the financial information provided to Lessor is true and correct.

15. Assignment

Lessor may assign this Lease and any Rent due hereunder without Lessee's consent. Lessee may not assign or sublease without Lessor's prior written consent, which may be withheld in Lessor's sole discretion.

16. Governing Law and Forum

This Lease shall be governed by and construed in accordance with the laws of the State of California, including Cal. Com. Code Division 10, without regard to its conflict-of-laws rules. The Parties consent to the exclusive jurisdiction of the state and federal courts located in [____________________] County, California, and waive any objection to venue. Cal. Code Civ. Proc. § 337 governs the limitations period.

17. Jury Waiver / Judicial Reference (Optional)

California does not permit pre-dispute jury trial waivers in state court actions. See Grafton Partners v. Superior Court, 36 Cal. 4th 944 (2005). In lieu of a jury waiver, the Parties may agree to judicial reference under Cal. Code Civ. Proc. § 638, or to binding arbitration administered by [AAA / JAMS] under California law. ☐ Arbitration elected ☐ Judicial reference elected ☐ Neither.

18. Integration; Parol Evidence

This Lease, together with its Schedules and any executed amendments, constitutes the entire agreement of the Parties with respect to the Equipment and supersedes all prior or contemporaneous oral or written agreements. Cal. Code Civ. Proc. § 1856 and Cal. Com. Code § 10202 govern the admissibility of extrinsic evidence.

19. Notices

All notices shall be in writing and delivered by (a) personal delivery, (b) overnight courier, or (c) certified mail return receipt requested, to the addresses set forth above.

20. Counterparts; Electronic Signatures

This Lease may be executed in counterparts, each of which shall be deemed an original. Electronic signatures are valid under the California Uniform Electronic Transactions Act, Cal. Civ. Code §§ 1633.1 et seq.

21. Severability; Waiver

If any provision is held unenforceable, the remainder of the Lease shall continue in full force. No waiver of any provision is effective unless in writing and signed by the waiving Party.

IN WITNESS WHEREOF, the Parties have executed this Equipment Lease as of the Effective Date.

LESSOR: [________________________________]
By: [________________________________]
Name: [____________________]
Title: [____________________]
Date: [__/__/____]

LESSEE: [________________________________]
By: [________________________________]
Name: [____________________]
Title: [____________________]
Date: [__/__/____]

Schedule A — Equipment Description

Schedule B — Certificate of Acceptance

Lessee hereby acknowledges that the Equipment described on Schedule A has been delivered, inspected, and accepted by Lessee on [__/__/____], and that acceptance under Cal. Com. Code § 10515 has occurred. Lessee's obligations under this Lease, including the obligation to pay Rent, are absolute and unconditional from this date forward.

Lessee: [________________________________] Date: [__/__/____]

Schedule C — Stipulated Loss Value

Sources and References

• Cal. Com. Code §§ 10101–10532 (Division 10 — Leases of Goods)
• Cal. Com. Code § 1203 (bright-line test for lease vs. security interest)
• Cal. Com. Code §§ 9307, 9509 (location of debtor; authorization of UCC filing)
• Cal. Civ. Code §§ 1668, 1670.5, 1671(b), 1717, 1856, 2782, 3287, 3289
• Cal. Code Civ. Proc. §§ 337, 638, 1856
• Cal. Rev. & Tax. Code §§ 6006.1, 6391 (sales/use tax on leases)
• Cal. Lab. Code § 3700 (workers' comp)
• Grafton Partners v. Superior Court, 36 Cal. 4th 944 (2005)