Full service leasing

Full service leasing
See also

Full Service Leasing – it is a full long-term rental of vehicles usually between two or five years, in which mechanical service and different non-financial services are included. It contains service costs for maintenance and technical repair, replacement vehicle during maintenance and also tyres for the lease period, insurance, assistance etc[1].It is therefore an extension of operating leasing, but beyond the basic financing it has a whole package of services[2].

Characteristics of full service leasing[edit]

Under the Polish Civil Code, legal status as at August 2011[3]:

Criterion Description
Form of conclusion
  • written form
Obligations of the landlord
  • issue of things
  • keep in a usable condition
  • responsibility for defects of things
Obligations of the tenant
  • paying the agreed rent
  • using things as intended
The right of the lessor
  • a statutory right of pledge on movable property of the tenant
  • termination of the contract without keeping deadlines, when the item is used contrary to its intended purpose, the tenant delays the payment for at least two periods
Tenant rights
  • the possibility of reducing rent, when the usefulness of things due to defects is limited
  • the possibility of termination of the contract when the item is unusable due to defects
  • possibility of sublease or free use
Duration of the contract
  • marked or unmarked
Reward
  • paid in advance for the entire period or until the 10th day of each month, if the lease is for a period longer than one month or for an indefinite period
Expiration
  • performance of the contract
  • late payment of liabilities
  • returning items in a non-deteriorated condition, i.e. excluding normal wear and tear

On the basis of Polish tax law, legal status as at May 2011[4]:

Criterion Description
Income tax on the landlord rental income
Tenant's income tax tax deductible cost: rent, and in the case of a passenger car also a part of non-deductible VAT
Buyout if there is such an option is at the market price

Advantages of the full service leasing for tenants[edit]

Among the benefits we can distinguish[5][6]:

  • Debt financing without any share of the tenant's own resources, there is no pre-payment, balloon installment or buyout option in this case, so it’s could be a cheaper option than traditional leasing
  • It’s easier to justify investments, because of higher return on investment in case of zero or a small investment
  • The linear nature of expenditure, costs of fleet maintenance are fixed and predictable; monthly fee is influenced by a number of factors, such as the car's make and model, equipment, rental time and mileage limit
  • Flexibility, the possibility of equipping fleet with cars of various purpose and type,
  • Maintenance could be cheaper than in case of purchased car, because most of these costs are borne by the landlord
  • It’s off-balance-sheet financing
  • Easy and quick to obtain
  • Convenience and minimizing the time spent on management, because the landlord deals with service and car servicing,
  • Reducing the number of accounting documents
  • Tax savings
  • A vehicle prepared in accordance with the client's specificity
  • Monthly fee is influenced by a number of factors, such as the car's make and model, equipment, rental time and mileage limit

Disadvantages of the full service leasing for tenants[edit]

Although the full service leasing is a very advantageous solution, there are factors that may hinder the development of this sector. They include:

  • Lack of entrepreneurs' knowledge about FSL, low awareness of benefits
  • The conviction that traditional leasing is a better form of buying out, because in the lease at the very end of the contract you can buy a vehicle for a few percent
  • Lack of correct calculation of the total financing cost of the vehicle
  • Convincing entrepreneurs that choosing a lease builds goodwill

Footnotes[edit]

  1. Nemi R. (2016), Operations management in a full service leasing company
  2. Diehlmann J. (2013). Automotive Management
  3. The Civil Code of 23 April 1964 – Polish and English (2011)
  4. The Corporate Income Tax Act of 15 Febraury 1992 – bilingual edition (2011)
  5. Bierman H. (2010), An introduction to accounting and managerial finance
  6. Nemi R. (2016), Operations management in a full service leasing company

References[edit]

Author: Sławomir Maciejowski