Small businesses can manage their finances by choosing to obtain equipment under a hire-purchase agreement. This arrangement differs from a conventional loan in that there is, strictly speaking, no actual lending or borrowing of funds. Below, we explain what a hire purchase agreement is as well as a labour hire agreement and how they work. 

What Is A Hire Purchase Agreement?

A hire purchase agreement can be a substitute to a business loan whereby the party hiring the equipment pays the financier rent. The financier will continue to own the goods until the hirer makes the final payment. Typically, hire purchase agreements have fixed regular payments. The type of information you may see in such a contract includes:

  • A description of the goods;
  • The rate of hire and interest charges;
  • The total price to purchase the goods;
  • Details of the deposit; and
  • Information on both parties’ rights.

How Does It Work?

Sometimes a hire agreement is not exclusively between the hirer and the owner of the goods or services (financier). A typical example of having a third party involved is when you hire cars or other vehicles. In most vehicle hire agreements, a finance company will purchase the car on your behalf, and then give you possession in return for regular payments (including interest). When the agreement terminates or comes to an end, and the total price of the vehicle has been paid, as well as the interest charges, the hirer can take ownership.

What Is a Labour Hire Agreement?

There can also be hire agreements for labour. A labour hire agency, for example, will rely on a written agreement for the provision of workers to a company. The type of information that you may see in a labour hire agreement includes:

  • The nature of the services;
  • The supply of workers;
  • Insurance details, if any;
  • Applicable fees and methods of payment;
  • Occupational health and safety measures;
  • Details of intellectual property rights;
  • Avenues for terminating the agreement; and
  • Details of what security measures are taken in the event of loss of finance.

Should It Be In Writing?

You should ensure you reduce the terms of your hire agreement to writing. If the party you are contracting with is a professional hire firm, they will usually only allow you to hire on their terms and conditions, so it’s important you read these carefully. 

Who Is The Legal Owner?

Under a hire purchase agreement, the legal owner of the goods or services is the financier (a person or company to whom money is owed) until the hirer makes the final payment.

Is There Any Risk?

Firstly, if you do not understand the terms of your hire, then you are needlessly exposing yourself to risk. It is sensible to speak with legal professional and review your hire purchase agreement. Secondly, you may also be liable for any damage to goods belonging to another business. Similarly, ensure you understand your responsibilities if you fall behind on your repayments (such as whether the financier can repossess the equipment after an agreed time-frame).

Am I Protected?

Just as the Australian Consumer Law protects you when you make purchases and buy goods, there are also consumer protections for when you hire goods or services. These are known as the Consumer Guarantees, which work to both protect consumers and ensure that businesses comply with these standards when employing hire agreements to provide goods or services.

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If you require assistance with drafting your hire purchase agreement, or have any questions about your rights and obligations, get in touch with our leasing and loans lawyers on 1300 544 755.

Annie Gunn

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