The past several years have seen an increase in equine leases due to AQHA’s favorable new rules on show leases. A lease is a great situation for both parties when the owner does not want to sell the horse, but might not be able to show the horse during the upcoming show season and does not want the horse to sit idle.
Lease situations, even among friends, can often become problematic when certain issues are not discussed thoroughly and put in writing. These misunderstandings can all be avoided with a well-drafted equine lease agreement. This article will address the five most common problems in equine leases and possible solutions. Keep in mind that the lessor is the actual owner of the horse, and the lessee is the person who is temporarily taking possession of the horse.
Problem #1: Return of the Leased Horse
Without a written lease agreement, the lessee could refuse to return the horse at the end of the lease, arguing that the lessor sold or gave him the horse. A basic written agreement would save time and costly legal fees by providing proof of ownership and the terms under which the horse is to be returned to the lessor.
In most agreements, the lessee is normally responsible for returning the horse to the lessor. It is also a good idea to require the lessee to pay a small late fee for each day the horse is not returned after the end of the term to encourage the lessee to return the horse promptly. However, if the lessor terminates the lease early without cause, meaning that the lessee did not breach any of the written terms of the lease agreement, it is only fair that the lessor be responsible for picking up the horse from the lessee.
Problem # 2: The Horse Becomes Ill or Develops Lameness
Most leases should require the lessee to pay mortality and/or major medical insurance for a specified dollar amount on the horse and list the lessor as an additional insured. Some insurance companies will not allow a lessee to insure a leased horse because they do not have an insurable interest, so please check with your individual insurance company and policy. Alternatively, the lessor may want to maintain his current policy on the horse to make sure that the premiums are being paid and that coverage is always in effect.
Additionally, many basic lease agreements do not address the situation if the horse becomes ill, develops a serious health condition, or develops lameness that could permanently affect the market value of the horse. While it is very possible for horses to develop a health condition or lameness during the lease term at no fault of the lessee (i.e. genetics), all lease agreements should include a provision that the lessee is responsible for the loss in the horse’s market value if the condition was a result of the lessee’s gross negligence.
Gross negligence is a conscious and voluntary disregard of the need to use reasonable care, which is likely to cause foreseeable grave injury or harm to persons, property, or both. Lessors that want to be stricter with this standard can opt for ordinary negligence instead of gross negligence, but this higher standard may cause issues and concerns for the lessee and should be discussed thoroughly by both parties.
For example, suppose that the lessee, an experienced horse person, rides the horse over rocky trails even when the lease agreement states that the horse is a show horse and is only to be ridden in arenas with proper footing. The lessee notices that the horse is showing signs of soreness, but does not have a veterinarian inspect the horse, and continues to ride the horse over the rocks. Eventually the horse becomes permanently lame, maybe not to the point to where the horse cannot be ridden, but enough that the horse cannot be shown in competition. Without the proper wording in the equine lease agreement, the lessee could return the horse in a much worse condition then when the lease started, and the lessor is left with a horse that is worth significantly less in value with no recourse against the lessee.
While loss of use insurance could cover some of these scenarios, keep in mind that loss of use insurance normally will only cover 50-75% of the horse’s full mortality insurance value, and that is only if the horse is totally and permanently unable to perform its intended use. Also, some insurance companies state that when they pay a loss of use claim that they become the owner of the horse, unless you agree to a lower claim payment amount.
Problem #3: Standard of Care for the Leased Horse
All lease agreements should set out a specific standard of care. The basics would include the quality of care, feed, handling, attention, and stabling customarily given to horses of this type. For high-caliber show horses, this standard should also set out regular veterinarian and farrier care, and that the horse must remain in training or boarded at a particular facility and may not be removed without written permission from the lessor.
Problem #4: Lessee’s Misuse of the Leased Horse
Similar to #3 above, problems often occur when the lessee uses the horse in a manner inconsistent with the understanding or wishes of the lessor. The example used in Problem #2 is also a good illustration of this point. In the example, the lease agreement states that the horse is a show horse and is only to be ridden in arenas with proper footing, but the lessee rides the show horse over rocky trails, making this a clear misuse of the horse. A well-written lease agreement should state the person(s) allowed to ride the horse, the type of training methods, and other types of permitted and non-permitted activities. The more specific the lease, the better it is for both parties and the horse.
Problem #5: The Horse Injures Someone or Damages Property
The most serious and problematic situation is if the horse kills or injures someone or damages someone’s property during the lease. Without a properly drafted lease agreement, the lessor could potentially be liable for damages even though the lessee was responsible for the situation. Most states do have equine activity liability laws, but they do not always provide the coverage one might think against certain types of activities. A proper equine agreement should include a release of liability and indemnification agreement. This means that the lessee accepts full responsibility of all liability relating to the horse during the lease, and agrees to indemnify the lessor if the lessor is sued.
While this article does not cover every issue that could arise in a lease situation, it does bring up several of the most common ones, and should make both the lessor and lessee more aware of all the important items that need to be addressed in the equine lease agreement. No two equine leases are the same, and a one-size-fits-all equine lease form will not address both parties’ issues in every lease situation. Please contact a knowledgeable equine attorney to help ensure that your equine lease is a good experience for you and your horse.
Carrie Russom Quraishi has been active in the equine industry for many years. She is a member of AQHA, NSBA, and NRHA and is an AQHA World Champion and multiple AQHA national high point champion. Based in Frisco, Texas, the Quraishi Law Firm strives to bring strategic solutions to the unique needs of the equine community. Carrie can be reached at (972) 731-4337 or via email at [email protected]
This article does not constitute legal advice. When questions arise based on specific situations, direct them to a knowledgeable attorney.
