Alan Gregory
6 minutes length
Posted: 26th May 2016

Three ways businesses waste money at end of lease

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The majority of money lost through bad leasing occurs at the end of the lease term.

There are numerous reasons as to why businesses miss out on the cost saving aspects of leasing once the contract approaches termination and, frustratingly enough, most of them are easily avoided through improved lease management.With an organised system, a bit of forward thinking and an optimised lease portfolio, businesses can avoid many of the disparities that can occur at the end of a lease and save a significant amount of stress, hassle, time and costs.

  1. Missed notice dates

Surprisingly enough, one of the key contributors to businesses incurring large costs at the end of a lease is the lessee failing to actually terminate it.

Lease schedules will often include a specified date of notice, by which the lessee will need to inform the lessor of what they would like to do with the assets when the lease terminates. These dates are very important as failing to meet them can result in your options being taken from you as you default into a new contract at the existing primary rate.

There are numerous reasons why a lessee may miss a notice date: assets gained through acquisition, missing documentation or even simply an overlooked email – however, the consequences can add up to a considerable cost.

It is important to implement some form of notification system to remind your team of when a lease is coming to an end. Innervision’s notification hub highlights when a lease is nearing a required action and allows you to select your options. Lessees are notified at least three times before their deadline, giving them plenty of time to analyse their preferred options and make the necessary arrangements with time to spare.

 

  1. Unattained return conditions

Most of us have experienced a challenge to our security deposits when we’ve rented a property or a car. Some of the conditions can seem unfair, petty and even outrageous, especially if the discrepancy is due to interpretation.

A lease contract in business will also contain return conditions, particularly if the lease doesn’t cover a substantial amount of the assets economic useful life. It is reasonable for a lessor to expect that the assets will be returned to an acceptable standard, especially if they have invested in a residual value, however, it is important that you are both aware and agreeable to the specific return conditions.

This requires some forethought in the lease inception stage in order to ensure a majority of scenarios are covered:

  • A clause to return a selection of computers in working order is generally reasonable.
  • A clause that they are returned in an acceptable condition is, again, reasonable, but a definition of “acceptable” should be specified and agreed.
  • A clause that asks for all original packaging, user guides and other easily misplaced items may be unrealistic and therefore should be discussed before the lease is agreed.

It is critical that the end users of the assets are also made aware of the return conditions where possible. If the assets are contractually forbidden to be painted, have holes drilled into them or extend a certain mileage, then the people using the assets day to day should be given a heads up.

These issues need to be considered in the early stages of agreeing a lease as they are extremely difficult to challenge once all is signed and approved. Be sure to negotiate your leases with your internal or an external leasing team of experts. They will be best placed to ensure that your leases are not only cost effective, but that the return clauses are reasonable and manageable and that end users are also aware of the potential restrictions they need to keep to.

 

  1. Unclear breakdown

It is imperative that you have access to the total cost of your lease and how it breaks down into the separate components.

Having the maintenance, rentals and insurance all tied into one payment may seem like a convenient and simple method, but can lead to problems further down the line if you haven’t got the full breakdown of these expenses.

If you chose to extend your original lease agreement into a secondary term, you should have the opportunity to renegotiate your lease rental rates accordingly. If your lease contract contains a clear and detailed breakdown of the various aspects that make up your lease agreement, it is a great deal easier to calculate and judge exactly what you still require and how each element would have changed following the first term. This information puts you in a strong position to negotiate and arrange a secondary term that is convenient, cost-effective and competitive.

If, however, your lease costs are bundled into one lump sum, you are relying on the lessor to provide you with the details of how this cost is calculated. If you do not know how much your current maintenance fee is, how can you determine if you would be better off getting your maintenance from elsewhere? Also, how can you negotiate a reduction when entering a secondary term on a theoretical number?

In order to maintain full control of your lease and to ensure you are getting the competitive deal you’ve agreed, you need to know where your rentals are going and how the lease costs is separated between each element.

 

No one wants to trip at the final hurdle, so complications and costs at the end of a lease agreement are incredibly frustrating and stressful, let alone expensive, inefficient and bad business practice.

With a comprehensive and centralised lease management process in place and full visibility of your entire lease portfolio, it is much easier to maintain full control of your leases and ensure that you are getting all the savings potential and competiveness that leasing allows as an alternative form of financing.

Software like Innervision’s lease management software LOIS, collates all your leases in one place and allows you to manage the entire leasing process from one unified platform, from inception all the way through to termination. With intuitive dashboards, leasing specific functions and advanced reporting, you can ensure that every lease ends seamlessly and the only expenses from your leases are expected and controlled by you.

To help ensure your company is well prepared for any unforeseeable and unwelcome end of lease eventualities, be sure to download our free guide ‘How to Avoid End of Lease Complications’.

The guide, which has been put together by Innervision’s experienced leasing experts details everything you’d want to know about eluding difficulties at the end of a lease and offers practical advice on the measures, systems and processes that will enable a seamless end of lease transition.

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Alternatively, you can call Innervision’s leasing experts and see how our specialised lease management and end of lease services have helped many multinational brands on: +44 (0) 20 7283 9422