Cost control: keeping a lid on end-of-lease charges
End-of-lease charges have a reputation in the fleet industry of being somewhat of a golden goose for leasing companies.
While fleet decision-makers are often frustrated by unexpected costs and the negative impact on their bottom line, leasing companies can be equally irked by contract breaches and protracted wrangling over responsibilities and recharges.
This tense tug-of-war between leasing companies and fleet managers can often be solved by intermediaries, who can act on behalf of both parties to reach a fair and agreeable outcome.
Whether your fleet management is in-house or outsourced, we outline what you need to know about end-of-lease vehicle charges and advise how best to keep a lid on this unwelcome cost burden.
End-of-lease charges: explained
End-of-lease charges are incurred when a vehicle, its equipment or accessories are not used, maintained or cared for as originally agreed at the start of the lease.
The charges are compensatory, in that they cover the leasing company for the cost of repairing damage or replacing missing items – even if they do not take this course of action.
End-of-lease charges cover a variety of scenarios and situations, from exceeding the pre-agreed mileage allowance, failure to service vehicles and inadequate servicing, to missing service history, lost spare keys and physical damage beyond normal wear and tear.
What is fair wear and tear?
Fleets are not charged at end of lease for any refurbishment that arises from normal wear and tear.
Leasing companies understand that the condition of vehicles deteriorate with normal usage and age and will make the necessary accommodations for small marks, scuffs and scratches.
Most leasing companies are members of the British Vehicle Rental and Leasing Association (BVRLA) and they commit to following the BVRLA guidance on levying end of contract recharges and what constitutes as fair wear and tear.
However, how these wear and tear rules are interpreted varies. Fleet decision-makers should firstly check that their leasing company follows the BVLRA guidance and then establish what condition the leasing company expects the vehicle to be in when returned. Clarify any duties or responsibilities expected of you as a fleet operator for the duration of the contract. Once this is in writing, it should be stored securely, should it need to be called upon in the future or if a dispute arises.
It is worth sharing this agreement with drivers to highlight their part in upholding these standards.
By mandating drivers to conduct regular vehicle checks, customers can identify any potential problems before they arise, while enhancing the employee duty of care culture.
Consider passing a proportion of the recharge costs for damage, lost keys or over-mileage on to drivers to instil a sense of responsibility, as well as to keep a lid on costs.
What if the vehicle is damaged?
To avoid recharge costs, customers should repair any damage that occurs outside of the agreed return standard before handing back the vehicle.
However, costs can still be incurred if these repairs are not carried out to a professional standard, by a reputable repairer, and by someone who can provide a fully-transferable warranty on the work.
It should be made clear to drivers that any damage that occurs should be reported immediately and repairs should take place at the earliest opportunity, to prevent the issue from escalating and significant costs arising during final repairs before the return date.
Damages resulting from parking incidents are a recurring issue, so consider whether the leased vehicle would benefit from parking sensors or limits to specs and extras, such as alloy wheels, body skirts or tinted windows. Highlight the importance of careful parking to drivers and ensure that they do not compromise visibility, such as dirty mirrors or obstructed rear windows.
What are pre-agreed mileage limits?
Excess mileage is one of the most common reasons for return vehicle charges.
At the beginning of the lease, an annual mileage limit will be agreed upon and the monthly payments will reflect the mileage limit. The higher the limit, the higher the payments, as the value of the vehicle decreases the more miles it racks up. When entering into contracts, companies should err on the side of caution when it comes to estimating mileage, as this can help ward off hefty recharges at the end of the lease.
Companies already committed to contracts should regularly review actual mileages against contract mileages and consider rescheduling return dates where limits look set to be breached.
What if I miss services?
Having a full manufacturer service history for the vehicle is integral to the predicted final value of the vehicle. Leasing companies will not only expect the vehicle to be serviced regularly, with the necessary paperwork to evidence this, but may also require that the vehicle be serviced with a specific franchised dealership. Failure to do so can result in recharges, so it is imperative that fleets are clear about the terms.
Lease car maintenance packages ensure fleets are covered for scheduled servicing and can help facilitate more effective cost forecasting.
Maintenance-inclusive contract hire packages can prove an unnecessary cost burden for fleet businesses so pay-as-you-go maintenance packages are becoming a more attractive option.
Fleets, on average, can realise savings of up to 15 per cent by opting for a pay-as-you-go maintenance model.
When looking to outsource pay-as-you-go maintenance, fleet decision-makers should ensure that a preferred SMR network is sufficiently large and robust, and that the flexibility is available to add additional repair centres of their own choice. This can help ensure work is carried out at the most convenient, local locations to minimise downtime and save costs.
Don’t wait until vehicles are serviced to check for problems. Costs can be avoided by carrying out regular maintenance checklists for leased vehicles, when it comes to both servicing and end-of-lease returns.
This can range from day-to-day checks, monitoring tyre pressure, checking lights are working, and keeping the interior and exterior clean so any marks, chips, rust or corrosion can be more easily identified and rectified, to weekly or monthly checks on oil levels, brake fluid and brake pads, coolant, air filters and batteries.
Make clear to drivers that dashboard alerts should never be ignored and should be reported as soon as possible.
The spare key has been mislaid – will I be charged?
A common but often overlooked recharge is for lost spare keys. Leasing companies often auction vehicles once they are returned and must foot the bill for replacing spare keys before they go to market. This means that there is no option to find and return the keys at a later date.
To avoid such costly mishaps, conduct an inventory at the beginning and end of the lease, to ensure that all removable items are returned on time.
Do I need to do a pre-collection inspection?
One way of controlling costs is to conduct a thorough appraisal of all vehicles before they are returned.
Here are some top appraisal tips for vehicles coming to the end of their contract:
- Wash the exterior, allowing time for it to dry. Water on the paintwork can mask faults
- Conduct a full walk-around, examining closely each panel including the roof, bonnet, doors and body for significant damage
- Inspect lamps, lenses, windows and mirrors for chips and cracks
- Check all tyres, including the wheels, trims and wheel spokes, for damage or deterioration. Don’t forget about spares. Check that the wear on the tread across each tyre is even
- Take note of and photograph any slight scratch or mark to any surface
- Valet the interior
- Check upholstered areas for odours, tears, burns, stains and wear. Lingering smoke or pet smells can incur charges
- Inspect all controls, including infotainment systems. Ensure all accessories and documentation are present, including a fully-stamped service book, a valid MOT certificate, operation manual, full set of vehicle keys, spare keys, locking wheel nut and vehicle V5 document
Carry out the appraisal of the vehicle around 10 weeks before the vehicle is due for return to ensure enough time remains to rectify any damage outside of the reasonable wear and tear rules.
How do I raise a dispute about damage charges?
A quick assessment of the car will take place at handover and the fleet decision-maker will be asked to sign a document confirming the superficial condition of the car.
This will be followed by an extensive and more thorough assessment, where extra return charges will arise and be passed on to the fleet decision-maker for payment.
If there is a dispute over the charges, an independent qualified engineer can be employed to look over the evidence and put forward their judgement. Final recharges will then be agreed upon by the fleet company and the leasing provider.
How can this be managed most effectively?
Recharge costs can be a significant drain on a company’s finances and avoiding or reducing them can be an onerous undertaking.
There are potential pain points for every vehicle and it can take a considerable amount of time and effort to effectively manage these risks. Considering that this process needs to be applied to multiple vehicles, of varying condition, lease length and contract requirements, fleet decision-makers are faced with a monumental task.
From negotiating favourable end-of-lease conditions and costs, efficiently communicating with drivers, and sourcing robust SMR agreements, to optimising mileage and vehicle usage, overseeing service and maintenance scheduling, and effectively managing accidents, an outsourced fleet solution could help alleviate the administrative burden, keep costs down and redirect resources to more business-critical areas, such as growth and profit.
To find out how our experts can help you to navigate end-of-lease charges and implement a cost-effective strategy, email advice@fleetoperations.co.uk
