Easy Guide: Colin Tourick on contracts

Rental Modification

Your lease will set out how and why rentals can be modified. For example, when the list price of the vehicle changes between the order and delivery dates.

In large transactions it is normal to see a tax variation clause. If the tax rules change, the lessor’s return will change and a tax variation clause allows them to charge you more, even after the lease has ended, so they still earn the ‘net of tax return’ they originally expected to earn.

Make sure you understand what the clause means if it appears in your agreement.

Events by default

The contract may say the lessor will allow you uninterrupted use of the vehicle (‘quiet possession’) so long as you meet your obligations. If you fail to do so, you will be deemed to be ‘in default’.

The list of ‘events of default’ in a lease can be long and the lessor will want the right to act promptly to protect itself if something goes wrong.

The contract will say how the lessor will calculate any sum payable on default. This ‘termination sum’ allows the lessor to recover the balance outstanding in its books and any losses, costs or expenses of the default or repossession.

All future rentals will become immediately payable, subject to a discount for early payment.

They can only ever charge you ‘liquidated damages’ (a justifiable amount – their reasonable estimate of their additional costs once you have gone into default), not a ‘penalty’ (an arbitrary charge).

If you have a disagreement with your lessor you can try to resolve it amicably.

The next step might be to make a complaint to the appropriate trade body, perhaps the BVRLA. Or you could take the dispute to court or arbitration.

Repossession

In all leases, the lessor remains the owner of the vehicle and can repossess and sell it if you default.

However, in a credit sale agreement, title to the vehicle passes to the borrower on day one so the lender has to rely on some other form of security, usually a guarantee from the borrower’s employer.

If a car is sold by the borrower/lessee without the funder’s consent, the rules are complicated. If the buyer is a private individual acting in good faith, they get good title to the car and it cannot be repossessed.

But if the buyer is a private individual who was not acting in good faith, they do not get good title and the funder has the right to repossess it from the buyer.

Pooled mileage

The contract will stipulate how many miles the car can travel during the life of the agreement.

If you have several vehicles it makes sense to have a pooled mileage clause in the contract, whereby the mileages of all vehicles that terminate in a ‘pooling period’ can be aggregated and compared with the aggregate of their contractual mileages.

If there is a net excess you will be charged for this or possibly allowed to carry (or ‘roll’) the excess miles forward into the next pooling period.

If there is a net credit (in other words, you have driven less than the contracted aggregate mileage) you will be allowed to carry this forward to the next pooling period or possibly receive a refund.

Fair wear and tear

In requiring you to return the vehicle to the lessor in good condition, ‘fair wear and tear excepted’, the agreement leaves a great deal open to interpretation.

BVRLA members comply with the BVRLA Fair Wear and Tear Guide.

However, this cannot say whether you should be charged £50 or £155 for a particular scratch.

To avoid disputes over small amounts of damage, some lessors set a de minimis level (perhaps £100) below which you will not be charged for damage to the vehicle (a ‘damage waiver’ limit).

Sole supply

Here you agree to place all of your vehicle finance and/or management requirements with one supplier. There are many advantages.

You will have only one point of contact to meet all your needs and you can develop a partnership with that organisation.

All your vehicles can be grouped together for pooled mileage purposes.

You get just one set of reports to review – there is no need for you to consolidate information from several sources.

The main disadvantage of sole supply is that suppliers offer keener prices if they know they are in a competitive position.

However, you can still check your supplier’s prices against their competitors’ from time to time, to keep them on their toes.

This article is an abridged version of section of Managing Your Company Cars in Nine Easy Steps, published by Eyelevel Books in association with Daimler Fleet Management.