cancel
Showing results for 
Search instead for 
Did you mean: 
minnisota
Veteran Contributor

Question about lease machinery and land

I have a question about a family member lease agreement with the corporation.

Under the lease it states that they are leasing all the corporations machinery and the corporation is responsible for the repairs of this machinery and there is no limits on the use of this machinery and that they can return machinery to the corporation if it no longer is usable. without penalty in fact there's nowhere about not paying on time. 

 

1st question I have never heard of a lease where the lessor is responsible for repairs oh and they have it written that the corporation will also insure the equipment never heard of that either. I've never heard of a lease that gives the lessee unlimited use.

 

Do any of you folks know the best way to proceed if this is declared to be unconscionable, This lease was drawn up by the corporate attorney and signed by the Director and President and it is a lease between the President and the Corporation 

 

Just another rookie trying to deal with relatives who seem hell bent on making my life miserable. If anyone here is familiar with leases between family members and their family corporation and the dasterly deeds done dirt cheap. 

0 Kudos
17 Replies
farmer46
Senior Contributor

Re: Question about lease machinery and land

First thing, if you are in this fight.  Get out the check book. This will cost money, lawyer money.    Lawsuit for mismangement, You will need to make the Corp. life miserable, maybe you will not win, but you can maybe change the way things are done. 

 

The only law I know is what I have paid for to a Lawyer. 

0 Kudos
minnisota
Veteran Contributor

Re: Question about lease machinery and land

Thanks for your answer but I know the routine with the Lawyers my question is.

 

Has anyone every heard of a lease where the Lessor paid for the repairs I've just never ever heard of such a thing. And gave the Lessee unlimited use. Just doesn't make sens.e 

0 Kudos
HalfAssAcres
Contributor

Re: Question about lease machinery and land

Not shure on your family structure but construction companys set up there own llc leaseing company that owns and maintains all the equipment and leases it to there other llc that does the actual work. The reason for this is if something happend the construction llc gets sued but has no real assets since all of there equipment is leased. This may be what is going on. There may also be a tax benifit to it not sure.

0 Kudos
ECIN
Senior Advisor

Re: Question about lease machinery and land

MN - I have a neighbor that leases a combine every fall - I can't remember the name of the company , but it's nation wide - They have a max hours to use , anything over they have to pay ,AND  the company pays for all parts if it breaks down -  

 

0 Kudos
dennymal
Veteran Contributor

Re: Question about lease machinery and land

I have a corp and I do the same thing. I lease my land to the corp which gives me income free of paying social security and the corp pays all the expenses.

0 Kudos
minnisota
Veteran Contributor

Re: Question about lease machinery and land

Thanks for your input I would really like to know that company that leasses their machinery and pays for all the repairs.

 

In this case the family c coporation has paid for this machinery and taken full 179 depreciation and now the machinery is being leased by the Corporate to the  officier who pays the leases to the corporation. Which pays no dividends to other shareholders.

 

Now they use the machinery as they please and charge the corporation 50% crop share lease. Then they also use the machinery on their private land and also farm other land they rent from outside the corporation.

 

The only tax benefit is taken by them because all the lease payments are tax dedutable on their personal taxes. And I'm sure somewhere down the road there will be a recapture of the 179 deduction to the corporation. They also have the corporation paying for the repairs and insurance.

 

So to put this simply as I see it and I could be wrong. They have the family corporation pay for the machinery and the family corporation receives no benefit from this machinery. They get to pay over time with no interest payments, no repair bills, and no limits on usage. Then by not paying any dividends they take the money that they pay for the leases and buy more machinery which they lease from the corporation to farm as much as they want. Someone tell me how in the heck this is good corporate governance.

 

 

0 Kudos
farm160
Veteran Contributor

Re: Question about lease machinery and land

Leases can be drawn up in many different ways.  From your post I get the impression you are a corporation shareholder who feels the corporation is bearing an undue burden by being responsible for all the repairs and insurance, and you feel the lessee (who also happens to be a Director/President of the Corporation) is getting an unfair advantage or there may be a conflict of interest going on.

 

Are you a corporate shareholder because you've bought in or because you've been gifted shares by a family member?  If you've simply been gifted shares, then your questions may be perceived as coming from an ungrateful recipient who is trying to get nosy.   Regardless, as a shareholder you should be able to get answers to your questions.

 

Who else is on the board of directors?   Do you have corporate meetings?  Do you get annual reports? The reason I ask, is because those are things that a corporation should naturally be doing.  If not, then that says it's more of a loosely held family thing and they probably don't want you stirring the pot.  Are you an off-farm shareholder or an in-law expecting a certain dividend that's not coming thru? I'd start by asking for reports/forms simply because you want to understand the business or your investment and take a more active role. 

 

There are a lot of dynamics going on in family corporations and tax reasonings and liability reasons for doing the things they may do.  The main question is whether the corporation is getting a fair rate of return on it's investment.  How you ask the questions can come across as educational or devisive and go a long way in determining how receptive they are at giving out information or changing things. 

 

So back to your lease question - a lease is just an agreement between two parties and can be set up in various ways, determining who pays for minor repairs, major repairs, major depreciable items, the labor portion of repairs, etc..   Those factors are taken into consideration when setting the rental rates which ultimately influence the ROI.  But a lease should have a date by when rent will be paid and if not paid timely the then BOD has a fiduciary reponsibility to its shareholders to act on their best interest.  If not, then the BOD should be replaced. 

0 Kudos
minnisota
Veteran Contributor

Re: Question about lease machinery and land

Yes I'm stirring the pot

 

Yes it's an unfair advantage.

 

Yes it's a conflict of interest

 

Only 1 Director and 3 shareholders including the Director.

 

Yep I'm the in-law your worst nightmare come true.

 

Yes it was gifted shares. Which has no bearing except in their eyes doesn't matter if they where gifted bought or inherited a share is a share. Baur v Baur Farms Inc.

 

Yes off-farm shareholder that has rights. 

 

Now back to the Lease. There is no ROI that's the problem. Who in their right mind would buy Machinery then turn around and let someone else use it for no ROI in fact they are leasing all of this machinery paying no interest they are using it wherever they want. That was my first question. I just wanted to know if anyone ever saw a lease where the leassor paid for repairs and insurance. The lease they drew up is just for the value of the equipment no ROI. No limit on usage and they can give it back if it no longer works.

 

In other words as I see it the corporation.which takes the leases payments and buys more Machinery that then leases that machinery will allow them to never have to pay a dividend. What a deal and what a lousy way to treat your own flesh and blood.

 

As far as replacing the BOD no way to do that without the votes. Yes they have meetings. Yes they give annuial reports.But they have the votes and they have total control. Sometimes I think the Lawyers set things up this way just to create problems.

 

Thanks for your input and I would be willing to send you a copy of this lease and you can see for yourself.

 

Just ranting  

0 Kudos
minnisota
Veteran Contributor

Re: Question about lease machinery and land

Oh before anyone gets their panties in a bunch. We tried the communication approach. Was told nothing was going to change. I thought great until we found out they had leased all the Machinery and the land. And sent a letter that their would be No job No dividend no input at all from the corporate atty.

 

Why do people in positions of power never give an inch. Until it's to late. I hope this isn't the case but **bleep**. It just isn't right. Sad part is it will cost family relationships that have been around for all my life and money. I read these Legacy articles here and they sound so easy but when you have one side with unrealistic ideas it very hard nothing easy about it. I tried mediators they wouldn't have anything to do with that.why would they? I've tried everything I could think of if anyone else has a suggestion I'm up for it. But I won't be bullied or belittled.

0 Kudos