Vehicle Lease Agreement

What is a vehicle lease agreement?

A vehicle lease agreement is a document used to reflect a contract made between a vehicle owner, known as the lessor, and someone who pays the owner to possess and use the vehicle for a predetermined period of time, known as the lessee. A vehicle lease agreement is most commonly used with new and pre-owned cars, trucks, and motorcycles. However, the agreement may also be used with any other motor vehicle that has a Vehicle Identification Number (VIN) and license plate. Using a vehicle lease agreement protects both parties from any misunderstandings or miscommunications that may arise during the life of the lease by providing written documentation of the lease terms.

What is the difference between a vehicle lease agreement and a vehicle sale agreement?

Though both documents are used for vehicles, they have different purposes. A vehicle lease agreement is used by someone who would like to borrow a car for a set period of time before returning it to the original owner. A vehicle sale agreement is used by someone who would like to buy and permanently own a vehicle.

Is it mandatory to have a vehicle lease agreement?

No, it is not mandatory to use a vehicle lease agreement. Two people can have an informal arrangement where one borrows the car from the other. However, though a vehicle lease agreement is not mandatory, it is highly advisable to create one as it works to make sure both parties understand the details of the borrowing arrangement. It acts as protection for one or both of the parties in case there is a problem or future dispute related to the arrangement.

What is a "vehicle identification number (VIN)"?

A vehicle identification number, commonly referred to as a VIN, is a unique number assigned to every vehicle. The VIN is located in several places both on the vehicle as well as on the titles, insurance policies, and service records for the vehicle.

What is a "security deposit"?

A security deposit is money paid upfront to the vehicle lessor that is then returned to the lessee if and when the vehicle is returned to the lessor in good condition. This money may also be applied to the purchase price if the lessor elects to buy the vehicle after the lease is over.

What is a "down payment"?

A down payment is a form of payment that is made at lease-signing that is meant to reduce the monthly amount of the lease.

What is "Guaranteed Auto Protection (GAP) coverage"?

GAP coverage is a form of insurance that covers the difference between the amount the lessee owes on the car loan and the car's estimated value. This is particularly helpful in case the lessee is involved in an accident while driving the leased vehicle. In the event of an accident, the fair market value of the vehicle becomes a lot lower.

For example, a lease price of a car is $20,000 and several months later the vehicle is involved in an accident, but $15,000 is still owed on the lease. The insurer estimates that the new fair market value of the vehicle is $9,000. The lessee is now left with a $6,000 difference that will need to be accounted for in addition to the fees and terms outlined in the vehicle lease agreement. Standard insurance will help, but additional GAP coverage helps eliminate this deficit, saving the lessee from potential financial problems.

What has to be done once the vehicle lease agreement is finished?

Once the document is complete, both the lessor and lessee should sign and date the vehicle lease agreement. In most states, the document does not need to be notarized or witnessed to be legally binding. However, in Louisiana, Maryland, Wyoming, Nebraska, and West Virginia the document should be signed in front of a notary and notarized to be legally binding on the parties. The parties should each save a copy of the vehicle lease agreement in their files for future reference and in case of dispute or disagreement.

What must a vehicle lease agreement contain?

A valid vehicle lease agreement must contain at least the following mandatory sections:

• Parties: The vehicle lease agreement should include the name and contact information for all the involved parties, including the lessor and the lessee.
• Description of the vehicle: The vehicle lease agreement includes a full description of the vehicle including the make, model, year, license plate number, and vehicle identification number. The lease also states the retail value of the vehicle that is being leased and the residual value of the vehicle when the lease will be done.
• Odometer reading and disclosure: If the vehicle being leased is a four-wheeled motor vehicle or motorcycle, the vehicle lease agreement must include a reading of the odometer which displays how many miles the vehicle has been driven.
• Important dates: The vehicle lease agreement lays out when the lease is set to begin and end.
• Payments: The vehicle lease agreement outlines how much the lessee will pay, when those payments will be made, and how those payments will happen. The vehicle lease agreement also states how much the tenant will pay as a security deposit.

In addition to the above mandatory information, the following information may also be included:

• Mileage limit: The vehicle lease agreement has the option to set a limit for the maximum number of miles the lessee may drive the leased vehicle each year without having to pay an additional fee. Most leases limit the number of miles the Lessee may drive (often 12,000-15,000 per year). Higher mileage allocations can be negotiated for a higher monthly payment.
• Purchase option: The vehicle lease agreement can specify that the lessee will be given the option to purchase the vehicle at the end of the lease term.
  
  

Which laws are applicable to a vehicle lease agreement?

Vehicle lease agreements, like other lease and general purpose sale agreements, in the United States, are generally subject to both federal law and state specific laws, which cover general contract principles like formation and mutual understanding. Federal law dictates that a vehicle lease agreement must include a disclosure by the seller of the vehicle's odometer reading at the time of the leasing. Further, state laws cover commercial transactions and business. For example, in Louisiana, Maryland, Nebraska, Wyoming, and West Virginia, a vehicle lease agreement must be certified by a notary.

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