Your Client Signed a Lease. Who Pays When It Burns Down?
Your client called last week. The equipment they hired is gone. Damaged in an Accident. Totalled. And now they want to know whether they owe an amount they never budgeted for. The answer, in all likelihood, is yes. And the reason comes down to something most people overlook when signing a letting or hiring agreement: Who actually bears the risk?
Consider the scenario. A refrigeration unit is custom-fitted onto a truck trailer. The buyer takes delivery, starts using the asset commercially, and both parties assume the bank will finalise the credit agreement shortly. Before the bank signs anything, the truck is in an accident and the unit is destroyed beyond repair. The supplier claims the full amount. The hirer says it was never really the purchaser, ownership never passed, so the risk stayed with the supplier. A South African court disagreed. And the litigation that followed cost more in legal fees than the amount it was actually about.
All of it was preventable. Not necessarily by the accountant, but certainly with their help.
What Accountants Need to Understand About These Agreements
South African courts do not care what parties call their agreements. They care what the agreements actually are.
The substance of a transaction governs its legal consequences, not the label. If a client takes delivery of an asset and uses it commercially, risk typically travels with possession. Financing not yet finalised? That does not automatically suspend the risk. Credit agreement not yet signed? Same answer. The legal position depends on what the agreement actually says, and in many cases the agreement says nothing useful at all.
This is not an area where accountants should be providing legal advice. It is, however, an area where accountants are very often the first person a client calls. Understanding what the red flags look like is what allows you to ask the right questions and direct clients to the right professional before a dispute starts rather than after.
Where These Agreements Break Down
Most letting and hiring disputes are not complicated. They are predictable. The same gaps appear across industries and across years, and recognising them is the first step to protecting your clients.
Vague language is the most common. Terms like "reasonable maintenance," "fair market rental," or "as-is condition" look fine at signing and become unworkable the moment the parties disagree. If a client shows you an agreement with undefined standards at the core of its key obligations, that is a conversation worth having with a lawyer before the agreement is signed.
Silence on insurance is the most consequential. Many agreements say nothing about who is responsible for insuring an asset once delivery has been taken, particularly in the window before financing is finalised. If your client has taken possession of an asset and cannot point to a clause that allocates insurance responsibility, that gap needs to be closed. They should not be relying on assumptions about what the other party will do.
Payment default provisions are another frequent gap. Many agreements specify a payment date and nothing else. What happens if payment is late? Who can do what, and when? If the agreement is silent, neither party truly knows, and finding out in the middle of a default is not the right time.
Early termination is frequently misunderstood by clients. The Consumer Protection Act provides consumers with cancellation rights that the agreement cannot take away, and penalties for early exit must bear a reasonable relationship to actual harm. A client who believes a fixed multi-month penalty clause gives them certainty may be operating on a false assumption. This is worth flagging for legal review.
Finally, condition documentation is the one area where accountants can make an immediate practical difference without straying into legal territory at all. Photographs and a written condition record at the start of a letting or hiring relationship cost nothing and prevent disputes that would otherwise have no evidentiary foundation. If a client does not have this habit, encourage it.
What the Agreement Cannot Change
This is an important point for clients to understand, and one accountants are well placed to communicate.
A significant body of legislation governs letting and hiring arrangements in South Africa, and much of it cannot be contracted out of. The Consumer Protection Act, the National Credit Act, the Rental Housing Act, the Labour Relations Act, and POPIA may all be relevant depending on the nature of the arrangement. Statutory protections exist for both parties, and terms in an agreement that purport to waive them are void regardless of what the parties signed.
The practical consequence for clients is that they cannot rely solely on what the document in front of them says. What the law says matters too. A lawyer can advise on which statutory framework applies and what it requires. An accountant can make sure the client knows that question needs to be asked.
The Role Accountants Can Play
The value here is not in providing legal advice. It is in being the person who spots the problem early enough for legal advice to be useful.
Accountants see these agreements constantly, equipment hire agreements, commercial leases, vehicle financing, labour hire arrangements, service contracts that quietly blur into employment. Clients often sign them without reading them carefully or understanding the risk they are accepting. When something goes wrong, the accountant is usually the first call. By that point, the options are limited.
The better outcome is a conversation before the agreement is signed. Not a legal opinion, but a practical question: Has anyone looked at who bears the risk here? Is there a clause on insurance? Is early termination properly addressed? Those questions do not require a law degree. They require awareness of where these agreements typically fail, and the confidence to say to a client: Before you sign this, you should have a lawyer look at the risk allocation.
As explored in CIBA's earlier guide on operating leases, IFRS 16, and tax, the financial reporting treatment of a lease agreement also turns on how it is legally characterised. Getting the classification wrong affects not just the dispute outcome but the financial statements. That connection between legal substance and accounting treatment is squarely within the accountant's domain, and it is another reason to ensure clients approach these agreements with appropriate professional support.
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Further Reading
Operating Leases, IFRS 16 and Tax: A Basic Guide — Understand how lease classification affects tax treatment and financial reporting, and why legal substance drives the accounting outcome.
The Ethics Mistakes That Quietly Cost Accountants Clients, Fees, and Their Reputation — How operating outside your professional boundaries quietly erodes the client relationship.
Fewer Accounting Lawsuits but Bigger Consequences in 2025 — Why the risk landscape for practitioners is shifting and what judgment-based practice really requires.
The Compliance Basics Businesses Still Get Wrong — The statutory obligations your clients routinely miss and where your advisory role creates the most value.