The yellow experts at NTI explore the key considerations when hiring out Mobile Plant and Equipment (MPE), and explain why it’s important to understand what you are doing when it comes to hire arrangements and insurance.
As the cost of doing business continues to be top of mind in the current economic climate, it presents a two-way opportunity for those seeking to contain costs by hiring equipment, and businesses seeking to make the most of their investments by hiring them for use.
So, where to for help?
Obtain quality legal advice
Hire agreements are central to any hire business and a critical risk management tool. Engage a lawyer experienced in preparing hire agreements for the mobile plant industry to draft an agreement tailored to you.
The one-off (and tax deductible) expense is negligible compared to the risk exposure from a contract that’s poorly worded or doesn’t cover the relevant risks and conditions.
According to NTI’s National Strategic Underwriter – MPE Gary Woodhams, this is a critical step.
“Don’t take shortcuts – if you don’t obtain good legal advice, you open yourself up when things go wrong,” he said.
“Crafting a good quality hire agreement can provide years of contract certainty and clarity of obligations for all parties.
“Conversely, a poorly crafted hire agreement – or one without legal input – invites complications.
“You could experience problems obtaining adequate insurance, conflicts around who is responsible for damage and insurance, accusations of unfair contract terms and delayed or declined insurance claims.”
Understanding business objectives and hire profile
Before drafting a hire agreement, your lawyer will need to understand some critical facts about your business to establish the hire profile and needs, including:
- Will you be offering wet or dry hire – or both?
- What’s your target market?
- Which items will you offer?
- What hire periods will you offer?
- Who holds risk in the equipment, how will it work, is it clear and fair?
Crafting the hire agreement
Preparing your hire schedule with transparent terms and conditions is a critical step you must work through with your lawyer.
“There is so much to consider, and you need that legal expertise to craft a hire agreement that will serve you and your customers well into the future,” Gary said.
“Critically, you want to deliver positive customer experiences. They’ll protect your reputation and boost your brand, leading to repeat business, referrals and a steady revenue stream.”
The goal is clarity of obligations to protect both owner and hirer.
Damage waivers
Damage waivers are not insurance policies; they are conditions or clauses in a hire agreement that limit the hirer’s liability or responsibility for certain types of damage to the equipment.
Damage outside the damage waiver’s scope remains the hirer’s responsibility.
If poorly constructed, damage waivers have the potential for disputes and other difficulties. Communication and clarity on what the damage waiver does and doesn’t cover is critical so the hirer can identify and make suitable arrangements to deal with any gaps, including opting out of the damage waiver and insuring themselves if they prefer.
Alternatively, you can comprehensively insure the equipment yourself while in the hirer’s possession and use.
You can attach conditions, such as hirer responsible for an elevated (i.e. not extreme) level of excess to force their skin in the game, and other appropriate and reasonable terms to ensure accountability.
Speak to your insurance broker
Your hire agreement should clearly describe what insurance you’re providing and the risks the hirer must manage or cover. Gary’s recommendation is to work with your broker.
“Brokers are experts and your appointed risk advisors,” he said.
“Be guided by them. The insurance side needs careful professional attention. If you are providing a damage waiver or full insurance, that is increased risk.
“Your broker’s input on how insurance arrangements comply with hire agreement requirements is invaluable. Your goal is to avoid uninsured losses for you or your customer. You want to be sure your hirers understand their liabilities and have a positive experience.”
It is essential to understand that your insurer is legally entitled to follow and deal with any insurance claims per the hire agreement terms, conditions, exclusions and limitations, including making recoveries (i.e. suing) directly off the hirer (i.e. your customer).
Hiring out your MPE can be a great way to generate revenue from all your assets. If you’re thinking of hiring out some of your MPE, it’s so important to obtain the right advice and insurance. Speak to your lawyer and insurance broker.
NTI insurance products are administered on behalf of the insurers by NTI Limited ABN 84 000 746 109 AFSL 237246. This article contains general information only and you should obtain your own professional advice based on your personal and business circumstances. NTI products are subject to limits and exclusions. When making decisions about its products, consider the product disclosure statement and target market determinations available at nti.com.au. NTI bears no responsibility, and shall not be held liable, for any loss, damage or injury arising directly or indirectly from your use of or reliance on the information in this article.