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Reminder Regarding Equipment Financing
Clients seeking to finance the purchase of equipment are advised that the time required to complete all the necessary legal documents may be quite lengthy. School districts may only finance the purchase of equipment through statutorily-defined avenues. Two common ways to finance equipment purchases are through either an installment purchase agreement (“IPA”) or a lease purchase agreement (“LPA”).
Installment purchase agreements are authorized by Act 99 of 1933, whereas lease purchase agreements are authorized under the Revised School Code. Both methods of financing require the board to adopt a resolution authorizing the financing agreement. Under Michigan law, only the board of education is authorized to enter into a contract and bind the district. Accordingly, it is crucial that the board members have a copy of the IPA or the LPA in front of them when they adopt the authorizing resolution. In Thrun Law Firm documents, the form of the LPA or IPA to be delivered in connection with the transaction is included in “Exhibit A,” attached to the authorizing resolution.
After the authorizing resolution is adopted, the district may opt to solicit bids from local banks to finance the equipment purchase. Alternatively, if the district has already received a bid for the financing, then the board will need to approve the interest rate and accept any other terms included in the bid at the time that it adopts the authorizing resolution. After a financing bid has been approved and accepted, various officers and agents of the district must sign and return all of the closing documents and certificates to Thrun Law Firm so that we can provide our legal opinion approving the transaction. While many of these documents and certificates may be executed by district administrators, others must be executed by an officer of the board of education.
The financing agreement itself also needs to be executed by the relevant parties. In the case of an IPA, the district, the vendor, and the financing bank will need to sign the IPA for it to be valid. Gathering the signatures from all three parties may take more time than anticipated. Additional time also may be required to negotiate and document any changes that may be requested by the vendor or the bank. A signed legal opinion approving the transaction cannot be delivered to the school district and bank until all of the original executed closing documents and certificates for the transaction have been received.
Additional time is frequently required to complete the process when school districts elect to document the transaction using forms prepared by a national leasing company [or bank] for use throughout the country. Such forms often require significant modification because they include terms that are very unfavorable to school districts and contrary to Michigan law. Therefore, we ask that our clients notify us as soon as possible after making a decision to finance equipment acquisitions. This will give all parties involved the time necessary to smoothly and efficiently complete the transaction in a timely manner.