Vehicle Lease as a Form of Bailment

Vehicle leases have become increasingly more popular in recent years. With fluctuating gas prices, and changes in family dynamics, many individuals find the lease of a vehicle is far more advantageous than purchasing a vehicle. If you are considering a lease vehicle option, it is important tot understand what the legal terms of your contract will be, especially when addressing issues of bailment versus a sale when the lease expires.

Bailment is the legal term used to describe the process by which property is transferred from on individual to another on a temporary basis. The lease option on a vehicle is considered a mutual benefit bailment, meaning the vehicle is transferred to one individual for temporary use in consideration for a lease payment to leasing company. Ownership of the vehicle, however, is retained by the leasing agent; in this case, the company for which the lease agreement is made.

When leasing a vehicle, your bailment agreement may come with provisions for conditional sale or provisions for a bailment with an option to buy. These two terms are quite different. For a conditional sale, as part of your lease, or bailment agreement, you are agreement to purchase the vehicle at the end of the lease agreement when you meet specific conditions of the contract, usually making a balloon payment. As a secured transaction, in most states, when you do not comply with the conditional sale terms as part of the bailment, and you do not make the balloon payment at the end of the lease, the vehicle is then repossessed by the leasing company.

In contrast, a bailment with an option to buy provides the individual who is leasing the vehicle an option to return the vehicle at the end of the lease agreement without any obligation to make a balloon payment or to purchase the vehicle at the end of the lease agreement. In many cases, the leasing agencies will attempt to make the bailment agreement loaded with a conditional sale language but, ultimately, it may be "option to buy" language that you actually want to agree to within the bailment contract.

When considering the lease of a vehicle, it is important to understand the terms of the agreement. Because bailment does not give you exclusive ownership to a vehicle, it is important to understand how, and if, you can acquire ownership and if that will become a mandatory part of your bailment, or lease, process. Understanding the difference between these two terms can, ultimately, provide you with a significant financial outcome when the bailment is ended and you want to return the leased vehicle back to the bailor, or leasing company.