The second flaw in this reasoning is that lessors often have not paid for equipment during interim period. They may not have incurred any additional cost during this period. The net result is that lessees incur significant increases in their effective lease rates while lessors are able to sneak extra yield through a trap door in lease. Interim rent can turn a competitive lease into a relatively high rate transaction.

Solutions

Savvy lessees look for ways to limit or eliminate interim rent. They try to ensure that they receive lease deal for which they bargained. Here are five strategies to blunt impact of interim rent:

1. Eliminate interim rent. Try to negotiate a lease that excludes interim rent. One way to eliminate interim rent is to have interim period count as a partial payment period. Another partial payment period can be added at end of lease, such that two periods constitute one full payment period.

2. Pay interest instead of interim rent. Instead of paying interim rent based upon periodic payment, base interim payment upon implicit transaction rate or your borrowing rate. This method will eliminate return-of-capital component that plagues most interim rent calculations.

3. Limit or fix amount of interim rent. If you cannot eliminate interim rent, you can try to negotiate a limit on it. You can offer lessor a fixed interim period, regardless of equipment acceptance date.

4. Manage equipment deliveries. Another strategy is to coordinate with equipment vendor to schedule equipment delivery and acceptance towards end of month. End-of-the-month acceptances would ensure a reduction in interim rent since interim periods would be short.

5. Sale-leaseback at month end. As a last strategy, if allowed by lessor, you could schedule a sale-leaseback of newly acquired equipment at month end. This strategy would also guarantee a short interim period.

It is important to understand impact of interim rent on your lease. Rather than assume that you will receive lease rate quoted, review lease carefully. If your lease includes interim rent, plan to negotiate this feature. Use one of strategies above to reduce this potentially costly aspect of your lease. Even if you cannot eliminate interim-rent trap door, you may be able to seal it.