Understanding your lease contract: 10 clauses to know

Most people sign a lease contract without reading it carefully. The clauses that catch drivers out are rarely the ones they expected — a mileage bill at the end, a damage charge they assumed would not apply, or a termination fee they had not planned for. This guide walks through the 10 most important clauses in a standard car lease agreement so you know exactly what you are agreeing to before you sign.

What you are committing to at signing:

The mileage allowance

• You agree an annual mileage limit at the point of signing — for example, 8,000, 10,000 or 15,000 miles per year

• The lower your agreed mileage, the lower your monthly payment: the finance company uses your mileage to estimate the car's future value

• Set this accurately based on your real driving: underestimating creates an excess charge at the end; overestimating means paying for miles you never use

• Your mileage allowance cannot usually be adjusted in the first 12 months or the final 6 months of your contract

Excess mileage charges

• If you exceed your contracted mileage, you pay a charge per mile over the limit at the end of the lease

• At LeaseCar, excess mileage charges typically run from around 10p to 30p per mile, agreed at the start of your contract

• This is not a penalty: it is payment for additional use you have already benefited from

• If you think you will exceed your mileage mid-contract, contact LeaseCar to discuss an adjustment within the permitted window: useful information

The initial rental

• The initial rental is an upfront payment equivalent to a number of monthly payments, typically 1 to 12, made before delivery

• It is not a refundable deposit: it forms part of the total lease cost

• A higher initial rental reduces your ongoing monthly payment for the remainder of the contract

The contract term

• The contract term is fixed at signing: typically 24, 36 or 48 months

• You are committed to the full term; exiting early involves a termination fee

• Shorter contracts offer more flexibility; longer contracts generally deliver lower monthly payments

Your obligations during the lease:

Insurance requirements

• You must hold comprehensive car insurance on the vehicle at all times

• The car is owned by the finance company: third-party-only cover is not sufficient

• Insurance is entirely your cost and responsibility: it is separate from your lease payment

• Gap insurance — covering the difference between a write-off settlement and the amount owed — is worth considering for higher-value leases

Servicing and maintenance

• You must service the car according to the manufacturer's recommended schedule

• Service records must be maintained: either a digital record or a stamped service book

• Failure to service can result in end-of-contract charges and may invalidate manufacturer warranty cover

• When maintaining a lease vehicle (either yourself or with Funder Maintenance), it needs to be maintained at a VAT registered garage that uses genuine manufacturer parts

• A maintained lease removes this obligation: servicing, tyres and routine maintenance are included in your monthly payment: view maintained leasing deals

Fair wear and tear

• You must return the car in a condition appropriate for its age and mileage, as defined by the BVRLA (British Vehicle Rental and Leasing Association) fair wear and tear standard

• Minor marks, light scratches and small stone chips consistent with normal use are acceptable; significant damage, deep scratches and interior tears are not

• Charges for condition beyond the standard are assessed at the return inspection and notified within four weeks

• See LeaseCar's full fair wear and tear guide for specific examples of what is and is not acceptable

Changes, endings and what you cannot do:

Early termination

• Early termination is usually possible but involves a fee, typically calculated from the remaining monthly payments

• It is rarely cost-effective: plan for the full contract term before signing

• If your circumstances change, contact LeaseCar before acting: there may be alternatives

• Voluntary termination rights under the Consumer Credit Act apply to PCP and HP finance agreements — they do not apply to Personal or Business Contract Hire

No ownership and no modifications

• Under a Personal Contract Hire (PCH) or Business Contract Hire (BCH) agreement, you will never own the car

• There is no option to purchase the vehicle at the end of the contract: this distinguishes contract hire from PCP (Personal Contract Purchase)

• You may not permanently modify the car or add accessories that cannot be reversed: it must be returned in its original specification

Return conditions

• The car must be returned by the contract end date: late return may incur a daily charge

• All keys, V5C logbook, service records and original accessories must be present at collection

• If you believe a damage charge is unfair, you can raise a formal appeal with the BVRLA

• The full end-of-lease guide covers the complete return process and what to expect on collection day 

What happens at the end of my lease?