Lease - in the context of a motor vehicle, a lease is a contract by which a vehicle is rented for a stated time by the owner (the lessor) to the user (the lessee). A motor vehicle lease can be a Finance Lease, a Traditional Operating Lease or a Profit Return Operating Lease.
Fleet Lease — a generic rather than technical term to generally describe a vehicle lease applicable in a corporate or fleet environment where there are in excess of, say, 5 vehicles. The fleet solutions and types of vehicles in such an environment can be diverse and span from “tool of trade” applications (e.g. a salesperson vehicle) to “job benefit” applications (e.g. salary sacrifice vehicles for senior management).
Finance Lease — also referred to as Finlease™ — a lease under which the lessor effectively transfers to the lessee substantially all the risks and benefits incidental to ownership of the motor vehicle. Importantly, the lessee indemnifies the lessor for the agreed residual value at the end of the lease term which means the lessee carries the Residual Value Risk. Under the terms of a finance lease, the lessee has no option/right to purchase the vehicle either during, or at the end of the agreement. However in practice, most financiers will consider an offer to purchase a vehicle for the residual value at the end of the lease term. There are two broad types of Finance Leases, Maintained and Non-Maintained. Finance leases can be Novated.
Traditional Operating Lease — also referred to as Oplease™ — a lease under which the lessor effectively retains substantially all of the risks and benefits incidental to the ownership of the motor vehicle. At the end of the lease term, the vehicle is returned to the lessor. The lessor retains any profits on sale or bears any losses, i.e. the lessor carries the Residual Value Risk. Depending on the nature and circumstances of the lessee, lease payments may be off-balance sheet. There are two broad types of Traditional Operating Leases, Maintained and Non-Maintained. Traditional Operating Leases can be Novated.
Novated Lease — also referred to as Novalease™ — a lease which has been ‘novated’ (assigned) by an agreement between a financier, an employer and its employee. The employee arranges a lease with the financier for the vehicle of their choice, and then assigns the lease to their employer. While ever the employee remains in the employer’s employment, the employer assumes all rights and responsibilities of the lessee including the responsibility for effecting the lease rentals. Typically, the Residual Value Risk is not novated i.e. it stays with the employee. The employer would normally deduct the lease rentals from the employee’s pre-tax salary. Where an employee ceases his or her employment with the employer, the novation is cancelled and the employee again becomes responsible for all aspects of the lease.
Residual Value Risk — the risk associated with the market value of the vehicle at the end of the lease being less than the residual value embedded in the lease calculation.
Maintained Lease — the lessor is, depending on whether the lease is a Fully Maintained Lease or a Scheduled Services Only Lease, responsible for meeting some or all of the maintenance costs associated with running the vehicle.
Non-Maintained Lease — the lessee is responsible all risks and expenses in meeting both the Scheduled Servicing and Non-Scheduled Mechanical Repair / Refurbishment Costs associated with running the motor vehicle. The lease rental therefore generally only covers the financing of the vehicle. The lessor and lessee may agree that the lessor will be responsible to meet the costs of items like re-registration or to include Reconcilable Components in the lease rental. In these cases, the lease rental will cover such costs.
Fully Maintained Lease — also called a Full Service Lease – the lessor is responsible for all risks and expenses in meeting both the Scheduled Servicing and Non-Scheduled Mechanical Repair / Refurbishment Costs associated with running the vehicle. Typically, under a Fully Maintained Lease the lessor is also responsible for value-add services such as vehicle procurement or in meeting other, either limited or unlimited, costs associated with running a vehicle such as tyres, re-registration, and road service in which case the lease rental will cover such costs. Reconcilable Components may also be included in the lease rental.
Scheduled Servicing Costs — the costs associated with servicing a vehicle in accordance with a manufacturer’s scheduled (time or distance) based service intervals. They do not include replacement or repair of mechanical consumables eg batteries, brake pads, clutches etc.
Non-Scheduled Mechanical Repair / Refurbishment Costs — all costs other than scheduled servicing costs required to maintain the vehicle in a functioning and roadworthy condition including the failure of mechanical components (including engines and transmissions) which may not be covered by the manufacturer’s warranty. Non-Scheduled Mechanical Repair / Refurbishment Costs do not include those that can be directly attributed to either impact damage, vandalism, negligence or abuse.
Reconcilable Components — costs that may be included in a lease rental by agreement between the lessor and lessee for which the lessee maintains ultimate risk. A provision is made in the monthly rental which is paid by the lessee and the lessor will, at an agreed time, reconcile the amount collected (via the provision) against the actual cost of providing the service. A typical Reconcilable Component is fuel.
Dedicated Fleet Management — a service which exists independently of any financing arrangement and is typically for larger motor vehicle fleets. A Dedicated Fleet Management program is tailored to a customer’s needs and can cover a range of aspects associated with running a vehicle fleet including but not limited to procurement, vehicle commissioning and de-commissioning, maintenance authorisations, fuel management, toll management, registration management, accident management, road service management and FBT reporting. Depending on the program and the component, costs can be handled on a ‘do and charge’ basis whereby the fleet manger will manage the process and charge the cost to the customer, or the fleet manager may underwrite Scheduled Servicing Costs, Non-Scheduled Mechanical Repair and Refurbishment Costs or other components.