A hire purchase or equipment hire agreement is a contract that allows a person to borrow an item from its owner and to use it for a sum of money.

A hire purchase contract will usually require a person to pay the owner the cost of the item in instalments plus interest over a specified term. At the expiry of the term the ownership of the item will transfer to the borrower. These types of agreements are popular with people wanting to possess and use cars or expensive pieces of machinery or equipment without having to pay the full cost up front.

By contrast an equipment hire contract involves a person paying the owner of an item a fixed sum. In exchange the owner lends the person the item on the condition that the item will be returned within a specified period and in a reasonable condition. This type of agreement is more popular for smaller items that only need to be used every now and then for a short period of time. Examples include:

• vehicle hire while on holidays;
• machinery hire to carry out gardening; or
• equipment for undertaking landscaping works.

It is important to remember that a contract does not need to be written down to give rise to rights and obligations between the parties. A hire purchase contract is a form of debt and is usually formalised in writing although agreements for equipment hire can sometimes be entered into over the phone with details discussed and confirmed verbally rather than in writing. Calling up a hardware store and arranging for the hire of a power tool is an example of a verbal equipment hire contract. Even though the parties to this kind of contract do not generally discuss or write down the terms of the contract the law imposes certain conditions on the parties. If the implied terms are breached and loss or damage has been suffered by either party then remedies to compensate will usually be available.

There are significant benefits associated with purchasing or using items through hire purchase and equipment hire agreements. There are also potential pitfalls to be aware of and avoid.

This Legal Guide on Hire Purchase and Equipment Law provides sellers and buyers with information about the rights and obligations of both parties in relation to hire purchase agreements and the implications of default under a contract. Before making important decisions it is advisable to obtain legal advice specific to your situation. LegalEagle’s™ free directory profiles all lawyers in Australia. You can use it to Find a Lawyer near you.

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Warning: Information provided through LegalEagle™ is for general guidance. It is not legal advice. Laws and procedures referred to may change and differ between states, territories and nationally. There may also be important exceptions or qualifications. Only a lawyer providing formal legal advice can assess your particular circumstances to determine how the law will apply.