 Sam
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 Posted: Tue Apr 13, 2004 5:27 am Post subject: Open-End Lease |
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Open-End Lease is a kind of rental agreement where the lessee is obligated to purchase the property on lease at the end of the agreement. The lessee has to pay for the difference between the residual value of the leased property and the fair market value, provided the latter is lower in value when the lease expires.
The lessee bears the risk that the asset may depreciate more than is expected by the end of the lease. But the lessee may also gain if the asset depreciates less than anticipated. The open-end lease thus requires a balloon payment based on the value of the leased property at the end of the lease.
The Consumer Leasing Act protects consumers against unreasonable charges required at the end of the lease. After the lessee meets the use and wear standards, the residual value thus obtained, may exceed the fair market value by greater than three times the base monthly payment. The residual value is then considered to be unreasonable. This is known as the Three-payment Rule.
However, if the lessee cannot come to an agreement with the lessor, none can force him to pay the excess amount unless the lessor brings a court action and pays the fees charged by the lessee's attorney. |
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