Why can't I rent out high-value goods to people in the UK?
June 7, 2014 6:29 AM   Subscribe

So this may sound dumb, and obvious.... I'm just thrashing out a question that I've been discussing with a couple of friends recently. Let's say I legally purchase a batch of high-value, trendy goods. It doesn't really matter what they are -- let's say the latest iPhone, for the sake of argument. Can I set up a store (online or in the high-street) renting them out to anyone who wants to agree to a contract with me? So let's pretend an iPhone 6 will retail at £500. If I purchase a batch of 100 at £400 each, and rent them out at £25/month for a 2 year contract, I make a good profit. Assume the iPhones are genuine, and that purchasers/renters are happy to arrange their own SIM cards, telecomms contracts, etc. These are working items. What are the reasons I couldn't do this? Is there any legal reason, or trading standards reason, that would prevent me from setting up a business doing this?

I appreciate that their may be practical problems and risks, such as:

Setting up a legal entity for the business.
How to deal with faulty goods.
Dealing with items broken by the renter.
Failure of people to pay, or people who cancel standing payments etc.
Competition would be massive.
Getting a decent price for the units.
Contacting the root provider - Apple, let's say - without being a recognised reseller.
Etc etc etc.

I'd less interested in hearing about such practical problems, although if you can think of a real show-stopper then do say.

This is a thought-exercise, it's about exploring the legal and trading reasons this sort of business might be impossible, or very very difficult, to set up.

I feel certain I'm being naive. Feel free to tell me so :)

Many thanks, hive-brain.
posted by ajp to Law & Government (21 answers total) 2 users marked this as a favorite
Businesses already do this for some items (examples: UK, LA), so it is possible. Of course, it also means that you have already-established competitors.
posted by googly at 6:36 AM on June 7, 2014 [1 favorite]

Response by poster: Yep -- there are plenty, I'm sure. Legally speaking, can I just buy a bunch of units, set up a website, advertise it, and wait for the profit to roll in?

I appreciate the question is vague, mainly because I don't know exactly what to ask.

Are there any professional trading standards for this sort of business, for example?
posted by ajp at 6:52 AM on June 7, 2014

Have you considered how few people would care to take you up on your offer? Anyone with credit card at less than 18%APR could buy a phone at £500, pay it off in 2 years or less at the rate of £25/month, and actually own the phone. Why would they may as much or more to you just to rent it? Rentals of anything but real estate are usually more expensive per unit of time but much more flexible than a 2-year contract.
posted by jon1270 at 7:03 AM on June 7, 2014 [2 favorites]

Best answer: you might do some reading on resale price maintenance and suggest retail price and click on the assorted laws, like the competition act of 1998.
posted by nadawi at 7:09 AM on June 7, 2014

Response by poster: @google Thanks, by the way :)

@jon1270 Good point. Does this prevent people renting phones generally, though? I mean, £40 per month repayments are not unusual. Granted, that typically involves the telecomms service as well. Some people do purchase new mobiles, but most rent don't they? Psychologically I'm sure "£40 per month debit" sounds better than "£500 up-front on your credit card". Maybe I need to look at the maths more.

@nadawi This is the sort of thing I'm after, thanks!
posted by ajp at 7:16 AM on June 7, 2014

Would people pay £25 a month for a new iPhone that you can't make calls on? I pay £40 a month, and got a new 5s with o2, and I get to own it when the contract's up.

You'd need a lawyer to draw up a cast iron (and legal) rental agreement initially. They'd probably charge several thousand, or tens of thousands of pounds for that.

What about fraudsters? People who sign up and keep the phone? Would you credit check applicants? This would add costs. And having a team to go after people who fail to pay and keep the goods.

To make decent money, you'd need many thousands of customers. Who deals with the phone calls and enquiries? And book keeping. And insurance etc etc.

Legally, I don't see any issues, and I do think it could possibly be a viable business. If you make £200 profit on a 2 year iPhone rental, and you could sell the device for £100 afterwards, then you need about 3,000 customers to make a million. But I just think there are a lot of question marks about finding customers, and keeping overheads down amongst others.
posted by derbs at 7:18 AM on June 7, 2014 [1 favorite]

I think realistically to make this viable and attractive for customers you need to make it shorter term rents. After all phone companies will sell contracts for 2 years that would be in the same ballpark of cost to the customer but at the end of it they own the phone (and can carry on using it or sell/give it away, or keep it as a back up if they get a new phone).

Credit cards and finance schemes exist for non-phone/tablet items like laptops as jon1270 points out.

That's going to lead to more turnover and more "downtime" when items are on your shelf rather than earning income. However you can potentially charge more for a shorter term contract - if users want something for a short term purpose then it wil save them overall to be able to rent what they need rather than having to buy it (either outright or on finance).

Similar schemes exist for wetsuits and other sporting gear - ideal for people who are getting started in a given sport and need equipment but aren't yet sure if they will be serious enough to make buying everything worthwhile. It's harder to see it working for iphones though - if you want an iphone you usually want it year-round, not for a short period.
posted by *becca* at 7:19 AM on June 7, 2014

If you can rent handbags, why not an iphone? They rent for 4 or 8 days.
posted by Ideefixe at 8:40 AM on June 7, 2014 [1 favorite]

Answering from the U.S. here (also Not A Lawyer), but as a general concept I think it's certainly legitimate.

Examples from a couple of quick web searches:

Casablanca Hire, who rent out tents, tables, chairs, catering equipment, etc. etc. etc. for parties and weddings and other special events.

London Audio Visual, who provide audio, lighting, and video equipment for concerts and conferences and other events.

(I work for a company that's pretty much like London AV & often work alongside companies like Casablanca.)

Also seconding googly's point about companies providing high-tech stuff for business purposes or film prop rentals, and Ideefixe's example of handbags.

So as far as I can tell, legally the general idea is fine, but there's a pretty sizable difference between what these companies do and your iPhone example, which is that these companies are dealing in highly specialized products and/or quantities of products that the general public doesn't have a need for on a daily basis. Dealing in something as ubiquitous and "trendy" as cell-phones and renting to individuals on a on-to-one basis means you're going to have "competition" because your potential renter has so many other options for getting their hands on a phone and paying for it. Plus renting someone just a phone with no SIM card or contract will probably seem like a big enough hassle to enough people that they'll be willing to pay more to have all that taken care of, reducing your potential customer base even further.

IOW, what does your iPhone idea offer the customer that makes it seem like a good deal for them? A smaller initial outlay of cash, maybe, but that's about it, and a lot of people are certainly capable of figuring out whether your rental idea is actually more expensive for them in the long run.

There's also the related concept of Rent-to-own or Hire purchase. Doing some searching using those terms may find laws or trade regulations that might apply to your potential rental business.
posted by soundguy99 at 9:44 AM on June 7, 2014

Best answer: In general there is nothing to stop you renting out a product you own outright, but it's a different matter if there some aspect of it that you don't own, such as an associated service.

If you own an unlocked iPhone in its virginal state, there is AFAIK nothing legally to stop you offering to rent it to me for a week or a year. If you have a pay monthly SIM in there though, there might well be things in the carriers terms that prevent you from "sub-letting" the contract to me. If that iPhone is full of books, movies and music from Amazon, iTunes, Netflix etc, there are probably clauses in their terms about how you can't buy the stuff for personal use and then allow all and sundry to access the content via renting out the phone.

Lots of things that you appear to own, you do not technically outright own in a clear cut way. Do you own your DVDs? Not entirely, you have a license to watch them yourself, and the regular consumer license doesn't allow you to rent them out or run a mini-cinema in your home off of your DVD collection.

If you own a car, you could rent it to me in principle. But if you have normal insurance on it, there are probably rules that say the insurance is voided by you using it for rental, and if you want to be legal you need a special type of insurance for car rental companies.

Apart from all that when you're doing something as a business, there are usually plenty of regulations applying to that type of business., about health and safety, taxes and more. Have you become a telephone network operator in the eyes of the law? A hotel? A taxi company?

I don't know how much your iPhone example was just a "for instance", versus what you're thinking of doing. That example is unlikely to be practical because the normal operators will be getting the phones at lower cost than you could, and their costs to run the required operations (billing, complaints, support, marketing, whatever) will probably be lower too. So you will never be able to undercut them, and no one will rent from you.

If you want to learn more about this kind of business, Google "sharing economy", which is the current buzzword. Here's a couple of articles from the Economist and the Guardian to get you going.
posted by philipy at 11:06 AM on June 7, 2014 [3 favorites]

Response by poster: "Hiring" or "renting" is clearly the wrong term, apologies.

I mean a 1 or 2 year contract, just like you'd get in a high-street store. Pay a monthly fee, and at the end of the contract the phone is yours.

This isn't about short-term rental (daily, weekly etc).

Let's say I'd be competing with the major phone contract providers. Is there any legal reason I'd be shut down?

Competition, risks, responsibilities etc are all very difficult to overcome, I agree. But assuming they can be overcome, are there any other traps?

If I buy 100 iPhone 6's tomorrow and start offering the hardware only at a monthly fee for people who can't splunk down £500 straight away -- is there any reason that would not be permitted?

I appreciate the overwhelming urge to dwell on unit cost, risks, and other "mechanical" issues about price and sales. Put those to one side :) Do any other problems remain?
posted by ajp at 11:12 AM on June 7, 2014

Response by poster: @philipy Excellent, exactly what I'm looking for. I hadn't thought about "outright ownership" and insurance issues. Thanks.
posted by ajp at 11:13 AM on June 7, 2014

Best answer: There's no legal reason at all why you can't do this, but there are legal restrictions on how you can do it, and what rights the hire-purchaser has. The costs that complying with this impose on a business means that effectively any potentially profitable customer demographic can get just as good a deal by using a credit card. Here's a solicitor advising hire purchase customers of their many rights.
posted by ambrosen at 3:09 PM on June 7, 2014

As far as phones are concerned, some O2 and Tesco mobile contracts are written as hire purchase agreement with phone service as only a small part of the bill.
posted by ambrosen at 3:11 PM on June 7, 2014

As the article ambrosen linked to points out, you would need to look at the Consumer Credit Act. I suspect the cost of complying with this plus overheads would mean this would be less cost effective than most credit cards!
posted by Mattat at 3:59 PM on June 7, 2014

There's a high street store that does this - brighthouse. As jon1270 says, anyone with access to credit can probably buy the item more cheaply using their own lines of credit. So they're left servicing customers who don't have access to credit. You can imagine where that leads.
posted by Leon at 5:12 PM on June 7, 2014 [1 favorite]

Who are you buying the phones from? What does your contract with them say?
posted by J. Wilson at 9:27 PM on June 7, 2014

The major phone contract providers are either network operators (ee, Voda, O2), mvno's (tesco, virgin, giff gaff), or sales companies with a relationship with operators and mvno's (carphone, phones4u). They don't just sell devices, they sell a service (the ability to make calls and use data) as well.

I don't know how you could sell (or rent) a device for cheaper than the device manufacturer (apple or Samsung) could, or provide a service for cheaper than a network operator? So not sure how what you're proposing would appeal to people enough for them to give you money for it instead of giving money to some other business.

Not a lawyer, work for a phone company.
posted by mgrrl at 3:20 AM on June 8, 2014

Response by poster: @J.Wilson If I've purchased the phones, they're mine, right? So I'd have no contract with the seller. This is bearing in mind the points raised above about "outright ownership" and insurance.

@Mattat, @Leon, @mgrrl While I appreciate the thoughts, as I've mentioned above this is a thought-experiment to expose legal hurdles, rather than an attempt to create a viable profitable business.
posted by ajp at 8:48 AM on June 8, 2014

Best answer: this is a thought-experiment to expose legal hurdles

A lot of the potential legal hurdles will depend on what exactly the proposed product is, and how exactly you propose to rent or sell it, and maybe even to whom.

As a general principle what you own is yours to sell or rent as you see fit. But given the details, there can be restrictions. For example you own a building, but zoning restrictions can limit what kind of uses it can be put to. Maybe you can't rent it out as apartments, but you can use it to run a self-storage business for instance.

However if you are allowed to sell thing X to person Y for use Z at all, it is pretty much always going to be legally do-able to sell it to them in a way that they pay you over time rather than all at once.

In general if you plan to sell some costly thing on a long-term payment plan, you are engaged in some form of consumer credit, and there are plenty of regulations about that. Looks like in the UK you'd need to register with the OFT for one thing.

The exact regulations that would apply to you would depend on the detail of exactly how you framed and structured the deal. Are they buying it outright immediately and simultaneously taking out a loan which they pay back over time? Do they somehow gain ownership over time? Does the law consider that there is loan interest involved in the payment process?

The most lightly regulated option would probably be if you were to frame the deal as "I will sell you an iPhone 6 for £600, but if you don't want to pay upfront I'll let you pay in 24 monthly installments of £25 instead." i.e. Have it be as clear as possible that there are no loans, no interest, no charges for stretching out payment, no anything that looks like a financial service tacked on to the deal.

As a generic thought experiment, yes you can do such things.

As a specific proposed business, you'd probably want to consult specialist lawyers, because the devil in the details.
posted by philipy at 10:21 AM on June 8, 2014

IOW, what does your iPhone idea offer the customer that makes it seem like a good deal for them? A smaller initial outlay of cash, maybe, but that's about it, and a lot of people are certainly capable of figuring out whether your rental idea is actually more expensive for them in the long run.

This sort of business model does work for some market segments where a business gains a tax advantage for spending $x on leasing vs spending the same amount on a capital purchase. Typically this is done for higher value items such a property & vehicles, but it might be viable in other areas as well - I know in some situations companies prefer to lease computers rather than own them etc.

This can be especially useful if the customer gets a hassle free experience - "Not working? here's a new one".
posted by HiroProtagonist at 9:30 PM on June 10, 2014

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