Rental Contracts: You Asked–We’re Answering

Because of the role your rental contract plays in your business, there always are questions regarding how it can best protect your business. That was evident from the many questions asked by rental operators who participated in January’s “Rental Contracts: Get the Law on Your Side,” one of four webinars offered through the American Rental Association’s Winter Webinar Series. To help shed more light, this issue highlights the answers to some of the most-asked rental contract questions at the end of the webinar. James Waite, Esq., managing member of Winters & Waite and the author of the Business Management: Contracts and Legal Guidelines — now updated with 16 new sections — has provided the answers. He was the featured presenter of this webinar along with Maura Paternoster, AIC, ARM, risk manager with ARA Insurance. Find the questions and summary answers grouped together regarding topic areas.


Signatures: Protecting your business

When it comes to rental contracts, many rental operators have questions regarding signatures. For instance:

Q: Do the terms and conditions of an original signed contract apply to any new pieces of equipment added/ exchanged if no additional signatures are obtained on the revised contract?

A: Probably not if you hope to enforce all of the specific terms of the rental contract you previously executed — unless you have a provision in your written contract that expressly extends its terms to other (additional) items of equipment that may be subsequently rented from you by that customer.

But under the Uniform Commercial Code, Section 2A-204, a contract can be deemed to exist through conduct of the parties, “which indicates an intent to enter into a contract” even in the absence of a signed agreement. However, a court would be less likely to enforce the extensive liability shifting provisions (the disclaimer of liabilities, the warranty waiver, the hold harmless, the indemnity and the upper limit of liability provision). Those probably would have to be signed by the customer in order to be enforceable. The rental company would have a better chance of prevailing if it were to include a provision in the contract such as: “Except only as may otherwise be separately agreed by the lessor, all of the terms of this Rental Contract will apply to all Rented Items identified on Page 1, and to any and all other items now or at any time hereafter provided by the lessor to the lessee.”

Q: We currently have a practice of having contracts signed in person or via fax before delivering equipment. Customers are pressing us to do this via electronic signature or a confirming e-mail. Is there a way we can do signatures electronically that will still hold up in court if there is any type of dispute?

A: Yes. The federal “Electronic Signatures in Global National Commerce Act” (a/k/a “ESIGN”) and the various state-enacted versions of the Uniform Electronic Transactions Act or “UETA” (other than New York, Illinois and Washington) now authorize electronic signatures of many kinds and ensure that electronic records and signatures used in interstate and foreign commerce are legally binding when properly completed. Electronic signatures are now generally accepted as legally valid and enforceable in most cases, provided the signer’s identity is verified at the time of signing. That said, electronic signatures are still new enough that some courts may be reluctant to enforce them without some extra convincing. (You may have to show “intent.”)

Q: If I have digitally/electronically saved a copy of a contract with the signature at the bottom, do I still need to save the original copy? What if I can’t save the additional initialed sections of the contract?

A: Digital/electronic signatures are generally sufficient now, but space permitting, it’s still safer to retain copies of originals for at least the statutory limitations period (usually two to four years). If you need to enforce a rental contract but can’t produce an exact copy of what was signed by the customer, you may have a difficult time enforcing the specific provision(s) you hope to — particularly if you can’t produce separately initialed sections that should bear the customer’s initials.

Q: Can you fax a copy of the contract to the customer and have that person sign it. Is that valid?

A: Generally, yes, but there are some important limitations, most notably, that you will need to be able to prove to a court that the “Terms and Conditions” (typically on the reverse side of the contract) also were received by the customer and that he/she could read them.

    1. Keep a printed fax confirmation showing that both the front and back pages were received by the customer.
    2. Make available a “larger-font” version of the terms and conditions (including a statement at the bottom that says, “A Larger-Print Version of these Terms and Conditions is Available Upon Request”).
    3. Have the customer sign the front and reverse sides of the rental contract and return both to you.
    4. Include in the terms and conditions an acknowledgement of the fact that faxed signatures are the equivalents of originals.

Q: Can the contract be signed at reservation instead of delivery and still be binding?

A: Generally, yes, but there are some important limitations, most notably, that your contract’s terms and conditions should deal with the delivery and setup/installation issues in a way that allows you to enforce the contract terms prospectively (that is, from and after the delivery/installation date). A court may be reluctant to enforce a contract that says, “The customer has inspected, counted and tested each Rented Item …” if the delivery date occurs two months after the rental contract was signed. There are a few things you can do to remedy this, including:

    1. Changing the language in your rental contract to say, “Upon delivery/installation, the customer agrees to inspect, count and test each Rented Item and notify us immediately of any defect, malfunction or shortage.”
    2. Having the customer sign a “Delivery and Acceptance Certificate” when the rented items are delivered/installed, and include in that certificate an acknowledgement that “The customer has inspected, counted and tested each Rented Item and has found it/them to be in good condition and working order, and otherwise acceptable in all ways.”
    3. Including in your rental contract terms and conditions an “umbrella” provision that causes it to cover all additional items the customer might request from you after signing the rental contract but before the scheduled date of the event.

Q: We have a rental contract in the form of a delivery ticket that our customer signs. On it, there is indemnity language with information on our terms and conditions that are available online. Is that sufficient or must we supply them with written terms on every contract?

A: Online availability of contract terms is becoming more commonly accepted as the technology gains more acceptance throughout the country, but I would not recommend relying solely on that. Ultimately, business may dictate doing so on some occasions, but I would try to get a complete copy of your contract signed by the customer at least once and include language that indicates your rental contract will apply to “all items rented from us in the future.”

Q: If a customer signs a terms and conditions on the reverse side of the rental contract when that person creates a new account, should we require the customer to sign the terms and conditions with every order?

A: If it’s difficult to get a new contract signed every time, then using one “master” contract is a good idea (just make sure it’s kept in a safe place). You also will want to make certain the contract the customer signed includes language that says it “applies to all items rented from us in the future” in the absence of some other agreement executed by both parties.