Vehicle Lease Agreement

What Is a Vehicle Leasing Agreement?

A car or vehicle leasing agreement is a legal contract between a leasing company and a client about renting out a vehicle for a short or long period of time. In other words, under a vehicle leasing agreement, an individual hires a car in exchange for paying monthly fees.

A vehicle leasing agreement is also known as:

• a vehicle lease agreement;
• a car rental agreement; or
• automobile lease agreement.

Under a vehicle lease agreement, you can rent out different types of vehicles, including cars, motorbikes, boats, etc.

Parties to a vehicle lease agreement are the lessor and the lessee. A lessor is an owner of a vehicle (e.g., a leasing company). A lessee is an individual who wants to drive a specific car for a defined period of time, known as a client.

What Does a Car Lease Agreement Look Like?

A car lease agreement does not have a specific format. Neither federal nor state laws define a car rental lease agreement form companies and individuals have to follow.

A typical car lease agreement template is a simple document with a 3-5-page length. It includes the following information:

• Type of a vehicle leased under a contract;
• Terms and Conditions of a vehicle’s usage;
• Payment terms (e.g., monthly payments, security deposits, disposition fee, etc.);
• Termination of a lease;
• Dispute resolution clause.

Depending on a situation, a car lease contract sample may also contain other additional information. For example, if a client wants to get a title over a car, we would include a buyout option in the text of the document. If a client has a record of road accidents, we would include additional driving restrictions. For instance, prohibition from driving in night hours.

As a rule of thumb, a car lease contract template should be negotiated first. But, in most cases, leasing companies tend to offer their standard terms and conditions of a car lease. In that case, a client can only adhere to those rules by signing the same.

What is the difference between a car lease agreement and a car purchase agreement?

Under a car lease agreement, a leasing company allows a client to temporarily use and possess a leased vehicle. In exchange for such a possession, a client undertakes to make monthly payments. At the end of a contract, a vehicle is being transferred back to its original owner, i.e., a leasing company.

A car purchase agreement is a contract of ownership of a vehicle from one person to another in exchange for a specific payment. The parties to a car purchase agreement are seller and buyer. The transfer of ownership takes place instantly.

Sometimes a car lease agreement template may also offer a buyout option. This is when a lessee can buy a leased car at the end of a car lease agreement.

When to Use a Vehicle Lease Agreement?

When it comes to practical application of a vehicle lease agreement, examples of situations when you may need it are listed below:

• Be in Trend. For example, Jack is obsessed with cars and follows all recent trends. Using a vehicle lease agreement template allows him to get the latest cars on the market and test them. Once something new pops up, he terminates a lease and rents out the new model again.
• Moving temporarily to a new place. For instance, Jacky has recently moved to New York for a 6-month intensive course in business marketing. She does not want to buy a car, but she needs to drop off and pick up her kids from school during weekdays. She investigates a car lease document template a local car rental company sent her.
• Planning financial future wisely. For example, Kate loves to drive a Volvo, but she cannot afford to pay the whole price at the moment. She considers signing a car rental agreement template first. Kate is confident that in two years from now she will have enough money to buy out the leased car.

What Information Is Necessary to Include in a Car Rental Lease Agreement?

Even though there is no fixed car lease agreement format, certain elements should not be forgotten.

Parties’ Details

Every car lease agreement should contain details of the lessor and lessee. A lessee could be an individual of the age of majority with a valid driving license. Most leasing companies perform their internal checks to learn more about your past traffic record.

Description of a leased vehicle

A sample lease agreement for a vehicle should always contain information about the vehicle being leased. This information should include:

• Make, model, year of production, and color;
• Condition of a vehicle (for used vehicles only);
• Odometer details (mileage);
• Add-ons for a vehicle (e.g., extra set of tires, car seat);
• Any additional information.

Having a detailed description of a car leased under a contract is helpful for many reasons. First, it allows better evaluation of wear and tear at the end of a contract. Second, it protects a lessee against unfair claims (e.g., scratches on a car).

Payment Terms

The money factor is vital. It is important to examine all types of applicable fees well in advance to avoid unpleasant surprises along the road.

• Monthly payments.

Those are regular payments a lessee should pay every month for using a leased car. Monthly payments could be fixed for the whole duration of an auto lease agreement. It is also common practice to adjust monthly payments with time, considering a vehicle’s wear and tear. For example, the amount of a monthly lease payment could be lower at the beginning and higher at the end of a lease.

The amount of lease payments widely depends on the capitalized cost of a vehicle, or cap cost. A capitalized cost is a leased car’s total value, including all applicable taxes.

• Security deposit.

This is a fixed amount of money a client has to deposit at the beginning of a lease. This sum is used to cover a car’s damage in case of a traffic accident, for instance.

If an auto lease agreement template provides a buyout option, a security deposit could be offset into a car’s purchase price.

• Additional Expenses.

If a vehicle lease agreement is signed for several years, extra expenses may pop up. Those expenses include a vehicle’s technical inspection or replacement of certain spare parts. As a rule of thumb, those expenses are covered by a leasing company. Make sure your auto lease contract template assigns the same obligation to your leasing company.

• Sales tax.

One of the main reasons why people prefer a car lease agreement over a car purchase is the absence of a sales tax. Some states do not apply sales tax for your rental or lease payments. However, this is not the case for all states. Non-application of sales tax might be absolute in one state and conditional in another. For example, California does not apply sales tax on car lease payments, while New Jersey does.

Pick up and return of the vehicle

A car lease agreement sample should define the date of a car’s pick-up and drop-off. If a lessee delays a car for a few days or weeks, additional penalties may apply. This is so because the same car might be already promised to a third party under another car lease agreement.

Terms and Conditions of Usage

A lessee should use a leased vehicle the same way as agreed in a signed vehicle lease agreement. Most leasing companies impose mileage limits. This is the most number of miles a lessee can drive every week or during the year. If mileage limits are exceeded, a lessee may face a one-time fine or an increase in lease payments.

Usually, a car lease agreement template prohibits using a car for street racing or as a taxi. All those activities may significantly affect a car’s normal wear and tear.

Duration and Termination of a Car Lease Agreement

A sample car lease agreement contract can last from several months to several years. The lease period starts on the day a lessee gets keys to a car.

Make sure a car lease agreement contains clear rules on how to end a contract, including an early termination. A contract should list circumstances when either party can end a contract in unilateral order.

Not all car lease agreement templates allow early termination. This is when a lessee wants to exit the contract before the end date. Even if early termination is not forbidden, it always involves paying extra fees. And this is a burden of a party who wants to exit the contract early.

Buyout Option

A buyout option, also known as a car-buying option, allows the lessee to purchase a leased car at the end of the lease. A purchase price should be indicated in advance in the text of a car lease agreement template. The said purchase price is a capitalized cost of a vehicle minus paid lease monthly payments.

Dispute Resolution

Every vehicle lease contract template should address how to resolve disputes between the parties. Most of the parties prefer to choose the exact state whose laws should apply to their dispute.

It is also possible to choose mediation. It brings your dispute out of the federal court system to independent mediators. Parties can always discuss the name of the mediator, the place of mediation, and even the language.

What are hidden pitfalls in the Automobile Leasing Agreement you should be aware of?

When reading an automobile lease agreement template, try to think out of the box. Despite the period of time for which a car lease agreement is being signed, consider the following:

Change of circumstances.

Loss of a job or main income or health problems may affect your regular lease payments. Try to always evaluate all grounds for early termination of a car lease agreement. Which financial consequences may it bring to you? For instance, a vehicle lease agreement may allow temporary reduction of lease payments until financial circumstances improve.

Force majeure.

A sample auto lease agreement should consider events of force majeure, including:

• Theft of a vehicle;
• A vehicle’s damage due to force majeure or car accident.

Having good insurance can protect you if either of these events occur.

Hidden fees.

A vehicle lease agreement may contain fees that you have not discussed directly with a leasing company. Those hidden fees can be of any nature:

• A vehicle’s depreciation fees;
• A disposition fee upon return of a vehicle at the end of the lease;
• Fees for “excessive” wear and tear of a vehicle;
• Fees for exceeding mileage limits and many others.

Knowing those fees well in advance saves you not only from a surprise but also from unexpected financial losses.

What Happens at the End of the Vehicle Lease Term?

Once a vehicle lease agreement comes to an end, parties may wonder what they should do next. In fact, the list of your actions will depend largely on what you are looking for.

Auto Lease Renewal

An auto lease renewal clause is a clause that automatically prolongs the existing vehicle lease agreement for the new term. Sometimes it could be the same duration as the original vehicle lease agreement. In rare cases it could be a month-by-month rental arrangement.

So if you are planning to end your vehicle lease agreement with an auto lease renewal clause, we would suggest the following:

• Check the original vehicle lease agreement on how an auto renewal could be stopped. Most probably you have to send a written advance notice to the other party, partyming them of the same.
• Prepare a vehicle for the return. In most cases it should be returned in the same condition as before, excluding normal wear and tear.
• Agree with the leasing company on the exact date and time for the return of the vehicle.

Buyout Option

If an original vehicle lease agreement has a buyout clause, here are two things to keep in mind.

First, some buyout clauses need to be “activated.” In other words, you have to additionally communicate to a leasing company about your intention to buy a car. Otherwise a lease could be terminated as it is. We would recommend sending an official letter well in advance to a leasing company. Check your original vehicle lease agreement for more details.

Second, make sure everything is ready for you to proceed with a purchase. In most cases you would have to pay a party a vehicle’s capitalized cost to close the deal.

Normal Termination

If a vehicle’s lease agreement comes to an end and lease renewal or buyout is not an option, here is what you have to consider.

A vehicle or a car leased under a lease agreement should be returned in the same condition. The normal wear and tear is acceptable. If a current vehicle’s condition exceeds normal wear and tear, be ready to pay additional penalties.

A vehicle lease agreement may also require you to pay a disposition fee. This fee is used to prepare a car for further resale.

How to Get Your Vehicle Lease Agreement Template at Faster Draft?

FasterDraft.com allows you to generate customized templates of legal documents in minutes. To do that, you have to follow a few easy steps:

• Click the button “Create Document” to start the process.
• Answer Questions: Every document has a short questionnaire. Try to give as many answers as possible. Your answers help to customize the future document better.
• Choose the format: Vehicle (Auto) Lease Agreement PDF or Vehicle (Auto) Lease Agreement in Word.
• Download the document: Your customized template of a vehicle lease agreement is ready. Once the download is complete, you can start using your document immediately.

For a vehicle lease agreement template to become a legally binding document, it should be signed by both parties.