The average golf cart fleet size at resorts is just over 70. This inventory of golf carts can be expensive to acquire and maintain so many golf resort owners seek to find ways to reduce the expenses of golf cart fleets.
Golf courses have tended over the past few years to lease rather than buy their golf carts. In 1990 only one-third of golf carts were leased. That figure is just under half in Frost Belt resorts and about two-thirds in Sun Belt resorts. This trend is expected to continue. Manufacturers actually prefer leases because courses tend to keep carts longer when they buy. A lease means more business for the manufacturer. Leasing can be attractive to the course because it reduces maintenance problems as servicing is included in many leases. By the time problems begin to develop it is time to return the carts and get new ones. While buying makes long-term economic sense for a course, in a the short-term the lease payment is less than the interest payments if the carts were purchased. Because of this lower payment the course does not have to sell as many rounds to make the payment. Leasing also frees up cash for other course projects.
Lease payments can be adjusted to the region of the country in which the resort is located. Frost Belt resorts can negotiate payments that are higher in the summer months and less or nothing in the off-season. Similarly, for a newly opened course reduced payments can be made during the first year with higher premiums due as the resort gets established. Discussions should also take place about expanding the fleet during the term of the lease. Most cart manufacturers will allow this without re-doing the entire lease but it is best to clarify this up front.Buyout terms should also be agreed upon at the beginning of the lease. There are two standard types of leases – operating leases and conditional sale contracts. In the latter there is an option to buy the fleet at the end of the lease.
Golf cart leases can be customized to meet the specific needs of the resort. One option is to customize the lease so that it ends with the end of the resort’s prime season. It would be difficult for management to have to re-negotiate the return and renewal of new carts during the height of the resort season. At the end of the busy season, management can best decide whether or not to purchase carts whose lease has expired or renew a lease on additional carts.
A second possibility is the Fixed Purchase Lease Option (FPLO). Unlike the Fair Market Value lease, where the decision to buy and the price of the carts is negotiated at the end of the lease, under FPLO the price of purchasing the fleet is known up front. Negotiations revolve around the trade-in value of the fleet. If the trade-in value is greater than the pre-determined purchase option, it makes sense to buy out the lease and trade the existing carts. If that is not the case, the existing fleet is returned to the leasing company and a new deal is negotiated for the next fleet.
The grow-in payment program is appropriate for new facilities. Payments are lower than normal for the first 12 to 24 months of the lease. As the resort improves its cash flow position, payments towards the end of the lease are greater than normal.
Under the Staggered Delivery Program the fleet of carts is not delivered en masse but staggered throughout the season as business builds (if this is a seasonal operation). One-third of the fleet might be delivered immediately prior to the season, another third as business begins to pick up, then the final third as business begins to peak.
A final option is the complete package wherein golf cart leases are packaged along with other equipment leases for such things as turf maintenance equipment, irrigation materials, etc.
The ideal golf cart lease contract is one that allows for a payment schedule that matches the cash flow of the resort, that matches a service contract with in-house maintenance capabilities, and that allows payments to be written off as operational expenses.
Mark