Vehicle leases are one of the most beneficial contracts to businesses, but protecting business interests requires having a detailed vehicle lease agreement template.  

A lease is a written agreement that states the requirements under which property can be let out and the terms that will apply during the lease. The agreement grants the person seeking the lease (called a “lessee”) use of the property for a specified time period.  

When property is leased for a commercial purpose, such as to support a new or already existing business, then it is called a commercial lease. Examples of property that might be leased by a business include manufacturing equipment, business premises, and vehicles such as a truck or delivery van.  

All parties involved in a lease agreement are legally obligated to abide by the terms of the contract, as any breach might invite legal action on the erring party. As a result, it is critical to understand how lease agreements operate and how to negotiate a commercial lease. 

Just a quick note before we dive in. Businesses often prefer vehicle leases as mobility is a big advantage and most business owners would prefer to spread the cost of the vehicle over an extended period. Therefore, we will focus largely on vehicle leases in this article and what businesses should know about negotiating leases of this nature. We also provide a vehicle lease agreement template so you can see the terms you might expect in a standard lease.  

What is a vehicle lease?

A vehicle lease is an agreement between an individual and a car dealership. Signing a vehicle lease means the lessee is accepting a set of criteria set by the lessor. Outlined below are some of common terms found in a vehicle lease: 

• Lease duration: The duration of a lease might be mere months, or it may take up to a certain number of years.  

• Specific annual mileage: The lessor might require an upper or lower mileage limit per year to control the rate of use of the vehicle. The goal of a mileage limit is to protect against rapid depreciation.  

• Specific mileage for duration of lease: A mileage limit may be set to cover the entire duration of the lease.  

• Consequences of going beyond the specified mileage: Common consequences include higher fees, or an obligation to buy the vehicle, in extreme cases.  

• Maintenance obligations: These obligations could include a requirement to provide monthly or quarterly service chits from an agreed service shop.  

• Monthly payment plan: The time of payment, manner of payment, and consequences of delay or failure to pay will be included here.  

• Lease termination clause: Certain leases may include an option to purchase either at the end of the lease or at any point during the lease. If the option is activated during the lease, it has the effect of terminating the lease. Otherwise, the lease ends at the expiration of the specified period.  

Common types of commercial vehicle leases

There are several types of leases which are often quite different from each other. A number of different leases are used in different sectors. The conditions of the lease are subject to the lessor’s preference and discretion. The decision is also made based on current market trends. Here are the most common forms of commercial lease agreements. 

• Absolute net lease: In an absolute net lease, the tenant takes care of the entire burden, including insurance, taxes, and maintenance. The tenants, in such a case, usually include large businesses that understand the terms of the contract and are ready to shoulder the burden. However, in most cases, property owners usually accept lower monthly rates. This is because the leasing client covers a large percentage of the operational expenses.  

• Triple net lease: The triple net lease comes with three expense categories associated with it: insurance, maintenance, and real property taxes. Such expenses are also known as pass-through or operating expenses because the property owner passed them all to the tenant in the form of rent excesses. In some cases, the excesses are referred to as taxes, insurance, and common area (TICAM). 

• Modified gross lease: The modified gross lease transfers the entire burden onto the property owner. Based on the terms, the owner pays all the insurance, property taxes, as well as the common area maintenance. On the other hand, the tenant shoulders janitorial, utility, and interior maintenance costs. 

• Full service lease: Just like the name implies, the full service lease takes care of the operational costs of the building. Nonetheless, there are a few exceptions, such as data and telephone costs. As for the remaining expenses, the rest of the cost is on the property owner, including maintenance of the building, payment of taxes, interior, insurance, utility, and janitorial costs. 

How to negotiate a vehicle lease

The vehicle lease is one of the more flexible lease types. The terms of a vehicle lease are often discussed by the two interested parties. This lease provides room for negotiation, with the negotiable terms often set at the lessor’s discretion. 

Nonetheless, you should be able to negotiate certain terms in the lease. While these terms may vary from contract to contract, there are some common negotiable terms of a vehicle lease: 

• Price of the vehicle 

• Criteria as regards down payments 

• Rent charges, informing you on how much to pay 

• Mileage limit for the duration of the lease 

• Consequences of exceeding specified mileage 

• Clauses providing an option to buy the vehicle, if so desired 

• Down payment/deposit amount 

• End of lease conditions 

You should note that the better your credit, the more room you may have to negotiate.  

What should you consider as you negotiate?

Even though a commercial lease is a legally binding agreement, there is room for negotiation between any involved parties. Outlined below are the essential steps to take before going into lease agreements:  

• Evaluate your needs 

• Always involve a lawyer 

• Understand your current finances 

• Understand your lease options 

• Check market trends 

• Do your Research 

• Review the conditions involving lease termination 

• Negotiate leasehold improvements 

• Look for a competitor clause 

• Look at renewal conditions 

• Don’t be quick to sign 

Advantages of leasing a vehicle

Due to financial reasons, many businesses would rather not own a vehicle outright or do not have the confidence that such a purchase is warranted. A vehicle lease provides a compromise for businesses that need cars but don’t want to buy one yet. The advantages of vehicle leasing include: 

• The opportunity to get a newer vehicle with every lease 

• Lower costs when compared to buying a car 

• Potentially lower monthly payments compared to financing a vehicle purchase 

• Car leases are easier to get compared to car loans 

• The option to purchase the vehicle at the end of the lease term 

Signing a vehicle lease provides flexibility, as you can negotiate for shorter lease durations. When your lease expires, you can change vehicles depending on personal discretion. Assuming that you stick to the lease terms, it can also be cheaper than buying a car, at least for the duration of the lease term. 

Disadvantages of vehicle leasing

There are also some things that can make leasing a less attractive option than buying a car. Here are a few of them: 

• You cannot use the vehicle above your mileage limit 

• The consequences for breaching your mileage limits can be severe 

• You may be liable for any damage to the vehicle  

• Terminating a lease before the period specified by the contract invites hefty charges 

• You are not allowed to make any modifications to the leased vehicle