Equine IndustryPublications

Lease Agreements: Balancing Risk and Reward

July 16, 2013Articles
Leasing a horse can be a great way to experience “owning” a horse without the full investment of purchasing a horse and taking on responsibility for the long-term costs of horse ownership. For the owner, or “lessor,” leasing a horse to a “lessee” can also have benefits, such as reducing the costs associated with owning the horse, or keeping the horse fit and in training if the lessor doesn’t currently have the time to ride. However, with these rewards come certain risks that are best addressed in a signed lease agreement. The agreement does not need to be a lengthy document, but a well-drafted lease agreement that clearly sets out the responsibilities of the lessor and lessee can protect both parties and prevent confusion during the lease period.

The following are some of the essential issues that should be addressed in a lease agreement.

•  Identity of the Parties. Is the lease between two individuals, or an individual and a business entity (i.e. Ancient Oak Farm, LLC)? Make sure it is clear who you are leasing the horse from, or to. Similarly, be sure that the lease states that the lessor owns 100% of the horse – if not, he or she may not have the legal right to lease the horse to the lessee, and the lease may not be enforceable.
•  Lease Fee. This seems straight-forward, but too often horse sales and leases are completed on a handshake, with no more than a verbal agreement. Make sure it is clear how much you are paying or being paid. If you are the lessor and the lessee stops paying, the lease agreement should show exactly how much you are owed. If you are the lessee, having the lease fee in writing can prevent the lessor from attempting to unilaterally raise the lease fee.
•  Term. Make sure it is clear in your agreement how long the horse is being leased. Is there a particular competition the lessee wants to enter? If so, the lease term needs to extend through that date. Does the lessee have the option to renew the lease at the end of the term? Such a provision could allow the lessee to keep leasing the horse even if a new potential lessee offered the lessor more money to lease the horse. Additionally, a lease term can be for any length of time – even for only a week or two, such as during a trial period. The same risks exist during a trial period as in a year-long lease, and a lease agreement can provide clear guidelines for a trial period.
•  Location and Use of the Horse. A lessor may want to specify where the horse is to be boarded during the lease – such as at a particular stable with a good reputation. Trips to horse shows or other competitions may be permitted. This provision can ensure that the lessee doesn’t move the horse to a stable with a lower standard of care, and it can protect the lessor if the horse is moved without permission or notice. Similarly, a written lease agreement can specify what the horse can be used for during the lease term, i.e. in what discipline it may be ridden, how many times a week it can be jumped, whether it needs to be ridden by a professional a certain number of times a week, etc. These provisions can protect the horse’s health and ensure that it is trained properly through the lease term.
•  Care and Expenses. One of the most important considerations in a lease is determining who is responsible for the care and expenses associated with the horse for the term of the lease.

Typically, a lessee is responsible for all day-to-day care expenses: farrier, routine vet expenses, boarding, training, transportation, show expenses, dental care, supplements, etc. The bigger questions arise in the case of extraordinary expenses – such as colic surgery. Does the lessee bear the cost? Do the lessee and lessor split the cost? When a lease agreement is negotiated, the lessor and lessee are balancing certain risks. If the lessee assumes the cost – and thus the risk – of a major surgery, should it arise, it may warrant a reduction in the lease price, or specific insurance or indemnification provisions.

Further, what happens if a horse is injured during the lease period, but there are additional veterinary expenses related to the injury that are incurred after the lease has ended? It may be advisable for a lessor to add a provision stating that the lessee is responsible for veterinary expenses even after the lease term expires if the expenses arise from an injury that occurred during the lease term. 
•  Insurance and Indemnification. Insurance is a straight-forward concept that protects against certain specified risks. It is highly recommended that a horse be insured for at least mortality and major medical expenses. In a lease arrangement, the question arises: during the lease period, who should pay the insurance premiums, and who should get paid if a claim is made? Frequently, the lessee bears the cost of the insurance, which makes sense, since he or she is in the best position to take care of the horse and hopefully prevent incidents that could result in a claim. Also frequently, the lessor is named as an additional payee on the policy. The ideal result is that both parties would be compensated for any losses they incurred.

While insurance protects parties in the case of injury to the horse, indemnification – which means compensating someone for loss or damage – can protect parties when the horse itself causes damages or injury. Again, the lessee, who has actual custody of the horse during the term of the lease, is in the best position to ensure that the horse does not inflict damage to anything or anyone. For this reason, many leases have provisions requiring the lessee to indemnify – or compensate – the lessor if anyone sues the lessor for damages or injuries caused by the horse. A sad, but not uncommon, scenario occurs when a horse in the care of a lessee escapes his paddock, ends up on the road, and causes an accident resulting in damages to property and/or injury or death to a person. The injured party can bring an action against the horse owner – who had no way of preventing the accident, since the horse was in the custody of the lessee – and a well-drafted indemnification provision can ensure that the lessee reimburses the lessor for any costs or damages that result from having to defend the lawsuit. 
•  Signatures. As with any contract, a lease agreement should be signed by both parties. Additionally, to be enforceable, the agreement must be signed by a person with authority to sign the lease.
•  Additional Considerations. The provisions covered in this article are fairly “stock” provisions, but a lease agreement can – and should – be carefully-tailored to the facts of a particular lease scenario. A lease agreement may, for instance, provide the lessee with an option to purchase the horse at the end of the lease term. On the other end of the spectrum is the “free lease.” Even where there is no traditional lease fee, a lease is never “free,” and, as indicated in this article, there are costs and risks involved in any lease.

Additionally, there can be state or associational requirements that govern the lease agreement or performance of the lease agreement. Many states have equine activity statutes that require very specific language about equine activity liability that can protect horse owners from claims. Further, associations like the United States Equestrian Federation may require that the lease be recorded. An equine attorney familiar with state and associational requirements can provide considerable guidance in tailoring a lease agreement and ensuring that it is enforceable.  

Ultimately, whether the lease in question is a “free” lease or a lease of a horse for Pony Finals, many of the risks are the same. A well-drafted lease agreement can provide for smooth sailing – or smooth riding – during the term of the lease.