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Exam A


Test your knowledge of equine law. by Attorney Krysia Nelson


To Lease or Not To Lease? What is the question?


s the new competition season is upon us, many competitors consider leasing a horse


rather than purchasing (or selling) one outright. There are many reasons to lease, but there are also many pitfalls for the unwary. Here are my “Top Ten” questions to answer before you take the plunge.


 So, what am I called? One of the biggest mistakes people make is to sign a lease agreement with- out understanding the terminology being used. The person who owns the horse and is collecting the fee is called the “Lessor.” The person who is leasing the horse and paying the fee for the privilege of using the horse for the lease period is called the “Lessee.” You break it, you buy it? As


a general proposition, the Lessee is not the “absolute insurer” of the horse unless that responsibility is spelled out in writing in the lease agreement. If the lease agreement doesn’t specifically shift that risk to the Lessee, then the Lessor’s interest in the horse may not be protected. On the other hand, if the horse breaks during the term of the lease, the Lessee should understand how much they are on the hook for. The full value of the horse? The diminution in its value? The full cost of rehabilita- tion? One way to shift the risk of a total loss is to require the Lessee to purchase mortality insur- ance (with major medical coverage), in case the horse dies. In this way, the owner/Lessor will be compensated for the horse. But this still leaves the possibility that the Lessee has no horse and is out the lease fee. There are two ways to address this: one is the agreement can specify that if the horse dies and the insurance pays out to the Les- sor, the Lessor will reimburse the Lessee the lease fee (or some portion of it); another is the Lessee


58 March/April 2019


can purchase “Lease Insurance” that insures the lease fee in the event the horse dies during the lease period. You break it, you fix it? The Lessor’s worst


nightmare is the horse that goes out on lease and breaks, followed by the worry that the Lessee will not properly rehabilitate the horse and render it permanently dam- aged. Most owners, upon hearing their horse has been hurt, want to “take it back” and do the rehab themselves. But I’ve seen very few lease agreements that specifically address this issue, leaving the question open if the unfortunate occurs. Expectations should be spelled out clearly. Right of return? Does the


Lessee have any right to return the horse to the Lessor during the term of the lease for any reason? Lessee’s should be careful, because


a Lessor’s offer to “take back” the horse may not amount to an agreement to cancel the lease, leav- ing the Lessee with no horse but still bearing the cost of his board, shoeing, etc. What guarantee? Like with the sale of a


horse, you can lease a horse “as is.” Do you or do you not have some kind of guarantee that this horse is going to work for you? Be clear about how much “due diligence” you should perform before making a commitment. Likewise, Lessors should be careful about unintentionally creating warranties. Purchase option? It is not uncommon for


a lease agreement to include a “purchase option,” whereby the lease fee paid by the Lessee will be applied to an agreed upon purchase price for the horse if the “option” is exercised before a certain date. There is certainly nothing wrong with this type of arrangement, so long as the “lease fee” is a fair fee for the period of the lease. It is generally


Ed Haas


Bar


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