What Are the End of Lease Options in the UK for Leased Assets? 

Not all business owners wish to purchase their business products upfront. Instead, you may borrow them for lease payments for an agreed period. This could suit your business needs, mainly where products are expensive and you need more cash flow. Therefore, you may decide to lease your business assets. For example, you may do this for office equipment such as your computers, or you may do this for significant assets such as your commercial vehicles. Although there are many different lease agreements for assets, you will also have various options at the end of the lease contract. This article will discuss examples of end of the lease term options in the UK for leased assets.

Leasing Your Assets 

If you lease an asset for your business, you will do so from a lessor as the lessee. This will involve hiring an asset for your company for a specific period rather than purchasing it outright. The lessor owns the asset, so has title to it, and you enjoy using the equipment in return for regular payments to the lessor. 

When your lease period ends, you own the equipment. Therefore, various options are open to you instead. These will depend on, for example:

• your intentions of any use of the leased asset;
• the lease type,
• what your contract says, and 
• how you may negotiate.

We discuss some standard options at the end of a lease in the UK below.

Returning the Assets  

When your lease agreement ends, the logical action is to return the asset to the lessor and let the lease end. This means you have no further commitment under the lease agreement. This is often the only option with lease agreements such as contract hire.

If you take this option and return your asset at the end of the lease period, you should:

• ensure you abide by any notice period in your agreement to avoid any unwanted extension of the lease at the lease’s primary rate; and
• return the asset in the return conditions specified;

Continuation

When your lease agreement ends, you may wish to keep it for longer. If so, you can request a lease extension. Where this is the case, firstly remember to:

• see what your notice period is for continuation and meet it; and 
• start discussions with your lessor in ample time.

Many lease agreements have pre-stated options for extensions. Therefore, it might be helpful to check what these are, as some may be more suitable for you than others. If you do not check these and act accordingly, you could find yourself with an automatic continuation of your lease agreement. This may be unnecessarily expensive as it could be on the primary terms of your lease agreement. Additionally, most lease extensions will likely last for up to six months.

Asset Refresh

If you do not wish to return the equipment at the end of your lease agreement, you may also be able to take an asset refresh. You may choose this where you have been content with the product and built a good relationship with the lessor.

An asset refresh is where you wish to continue leasing the same equipment for your business. However, in this case, the equipment you currently have is no longer state of the art as time has passed. Therefore, you can replace it with an upgraded version of the product. Additionally, your lessor may cover the cost of current equipment disposal. 

In this case, you start a new lease agreement with your lessor for the new equipment, and this will likely be at the fair market rate.

Buy or Sell Lease Equipment

Some lease agreements may let you buy or sell your equipment as an option when the lease agreement ends. You may hear people refer to these lease agreements as lease purchase agreements. This option is unusual for other lease agreements as the lessor tends to take back the assets, so they keep their title to it. 

To take this option at the end of our lease agreement, your agreement will have a ‘lease agency’ option. In this case, you, as the lessee, can sell the assets as the lessor’s agent. You will usually keep around five per cent of the proceeds from the sale.

Moreover, some lease agreements will allow you to buy the asset at the end if you settle the agreement. In this case, you will need to pay what is known as a final balloon payment and any option-to-purchase fee applicable. This means that the ownership of an asset passes to you from the lessor. The amount you need to pay is often the residual value the lessee establishes. 

Key Takeaways

If you lease your business equipment, you, as a lessee, borrow it from a lessor in return for payments. This means you enjoy using the asset while they retain the title. Once your lease agreement comes to an end, there are various options open to you. You will need to consider these. Further, you can return the asset and end the agreement. Alternatively, you may continue the agreement as you need the product for longer. Sometimes, there are options to update the asset and start a new agreement. Alternatively, some lease agreements allow you to buy or sell the leased asset.  

If you need help understanding the end of lease options in the UK for leased assets, LegalVision’s experienced leasing lawyers can assist as part of our LegalVision membership. For a low monthly fee, you will have unlimited access to lawyers to answer your questions and draft and review your documents. So call us today on 0808 196 8584 or visit our membership page.

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