A car lease is a legally binding agreement between a car owner and a "buyer" who only wants to rent the car for a short period of time. As with any rental, there are a number of risks involved with this transaction, so it is prudent for the car owner to create a formal car lease document describing the terms in clear language for both parties to understand. There are a number of important details that you should include in a car lease agreement.
- Skill level:
List the full names and addresses of both parties (the lessee, or renter, and the lessor, or owner) at the top of the document.
Include complete details about the vehicle such as the make, model, year, colour and vehicle identification number.
Provide information related to the lease payments. This includes the total amount the lessee must pay at signing, monthly payment, payment due date each month, and total number of payments to satisfy the terms of the lease.
Define the beginning value of the car at the time of leasing (also called the gross capitalised cost) as well as the expected residual value of the car (what it will be worth at the end of the lease).
Disclose the financing fees associated with the financing agreement. Include the total "lease charge," which is the total of all monthly financing fees for the duration of the agreement. This is the lessor's profit for leasing the car.
State the penalties of early termination of the lease agreement. For instance, some lessors will prohibit termination at the very beginning or towards the very end of the agreement or require the lessee pay a hefty fee for termination at any point in the lease.
List the total number of miles included with the lease and explain the charge for going over those miles. This is a per mile fee that you will charge the renter at lease-end if he goes over that limit.
Define the penalties involved if there is excessive wear and tear on the car when the lessee brings it back. For example, you might demand that the lessee pay the going rate for repairing a dent in the car or for new tires if they're bald.
List the details of any lease-to-own options available to the lessee. This gives the renter the option to purchase the car at lease-end if he wishes at a price agreed upon by both parties at the start of the lease.
Discuss the insurance requirements (both property and bodily injury coverage) that the renter must maintain for the duration of the agreement. This protects you, the lessor, in case of an accident that totals the car.
Provide an area at the bottom of the lease agreement for signature by both parties. Sign in the presence of a notary. Each party must have a copy of the agreement.
Tips and warnings
- Ask a lawyer to review the car lease agreement before signing, to assure that you've covered any laws required by your state.
- You can also purchase and download a car lease agreement template and insert your own terms. See "Resources" for an example of a website that offers these prepared agreements.
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