Full service leasing

Full service leasing
See also
Service lease Long term lease Direct lease Contract hire Lump-sum contract Demand loan True lease Swingline loan Ijarah

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..It is therefore an extension of operating leasing, but beyond the basic financing it has a whole package of services.

Characteristics of full service leasing

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

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:

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

Among the benefits we can distinguish:

• 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

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

References

• Bierman H. (2010), An introduction to accounting and managerial finance, World Scientific Publishing
• Diehlmann J. (2013), Automotive Management, Oldenbourg Wissenschaftsverlag
• Nemi R.(2016), Operations management in a full service leasing company, Helsinki Metropolia University of Applied Sciences
• The Civil Code of 23 April 1964 – polish and english (2011), Wolters Kluwer, Poland, legal status as at August 2011
• The Corporate Income Tax Act of 15 Febraury 1992 – bilingual edition (2011), publishing house C.H. Beck, Poland, legal status as at May 2011

Author: Sławomir Maciejowski