This article demonstrates the ways of ending a lease agreement so that you can make an informed decision about yours. An operating lease is, in a sense, a regular civil law contract, which means you can either fulfil it or negotiate with the lessor to make it longer or shorter. Quite often you are also allowed to delegate all your obligations as a lessee to a third party. Before you perform any such action, though, it is worth knowing its possible results, especially when it comes to your finances and taxes.
Fulfilling the lease
If you have an enterprise, the best option is simply to sign a reasonable lease contract whose conditions result from your financial situation, and then just fulfil it, i.e. pay all the repayments. If such an option has been stipulated in the contract, you will then be able to purchase the car at the price stated therein. In terms of taxation, the purchase will work exactly like a regular purchase of a car for a company. There are situations, e.g. in the case of sole proprietorship, when you can purchase the car as a natural person but the lessor has the right not to agree for it, so it is only their good will that you can hope for if you prefer this taxation scheme. If, on the other hand, you did not stipulate the option of purchase in the end of the lease in the contract, after paying the last repayment you will need to return the car to the lessor.
Delegation of lease
Enterprises tend to have their ups and downs. Depressing as it may sound, you can find yourself in a situation when a perfectly affordable repayment becomes too great a burden, one you’d prefer to get rid of. You may find delegation of lease the best option, then. If you delegate a lease, all of its stipulations are transferred to a third party; in other words, it is someone else that becomes the lessee and can use the vehicle. Finding a new lessee does not have to be difficult; technically speaking, their contract is safer than yours, as there are less repayments on the way (remember, you have already paid some), and there is room for negotiation of conditions as you are interested in getting rid of the burden. However, in order for the tax authorities to authorize the delegation of lease, its conditions, such as the number and cost of repayments, cannot change; if they do, the taxation office will consider the delegation a new lease instead.
How does one delegate their lease? First of all, you need to find out whether the lessor agrees for it and how much it will cost you; you can be sure it there will be an administration fee involved. The lessor should also determine what conditions will have to be met by the new lessee. When you have gathered the information, you can start looking for a company who will agree to take the lease over for the compensation you propose. You can often see such adverts online; they tend to be popular as the cars are almost as good as new and come at an attractive price. It is so because the “price” field will show the compensation cost, not the market value of the car or the remaining cost of repayments.
Bear in mind, though, that delegation of a troublesome lease will be costly. The lessor will surely use the situation to charge you some administration fee, and you will have to pay for advertising the car online or in press.
It is also worth mentioning that designation of lease can be useful for an enterprise that is a lessee and is about to undergo ownership or organizational transformations. No “new” lessee is needed, then; it is just your company after the transformations that takes the lease over.
Extension of lease
If you find yourself in trouble in financial terms, extending the lease is yet another option that may help you resolve the situation. An extended lease has lower repayments, as there is simply more of them to be paid over the extended period of time, and the sum does not change. You will, however, need to pay an administration fee for changing the lease conditions. Still, if you need the car or simply want to avoid the trouble caused by designation, extension of lease may definitely be worth the money.
Early termination of lease
If companies have their ups and downs, there will surely be periods when you earn more than you were expecting. You may then want to resign from the current lease and opt for a better (more expensive) one instead, or to pay the repayments faster if financial liquidity is needed for some major investments. Should such needs arise, you can designate the lease. You can also purchase the car, sell it and buy or lease another. If the minimum time of contract duration (i.e. 2 years) has passed, you can ask the lessor to issue an invoice for all the remaining repayments. It will not give you savings, though, as the remaining balance will be calculated including the discount rate which is very likely to increase the cost. Alternatively, you can also ask for an annex to the lease contract to have it shortened and recalculated; you will then pay higher repayments but there will be less of them, and the only other amount to be paid will be the administration fee.
Whatever your needs and options, bear in mind that manipulation with the lease contract does have its limits. The lease period must be at least 40% of the amortization period of the leased car, which means it cannot be shorter than 2 years. If you fail to meet this requirement, you will be obliged to pay the outstanding tax as if you were making an ordinary car purchase.
Every lease should be planned and calculated well, with enough consideration given to the risks involved. Leasing a very expensive car when your only financial plan is “to make it, somehow” doesn’t seem too reasonable. Should financial difficulties occur, every modification of contract will cost you from a couple hundred to more that a thousand PLN. It is therefore best to simply fulfil the lease contract; if you can do so, you will benefit most.