Our long-term rental contract contains no purchase option – neither at a pre-set residual value, nor on a "we'll see" basis. There are two reasons. One is legal: a structure with a pre-set purchase price is, in substance, close to an open-end finance lease – a licensed financial activity that banks and leasing companies may provide, but a fleet operator may not – and in a tax audit it would also raise the risk of reclassification, which could even call the VAT deduction on the fees into question. The other is commercial: a one-sided purchase right is asymmetric – the renter only exercises it when they win, and walks away from the car when they would lose. We do not enter into deals where only one side can win. That said: if at the end of the term a person connected to the renter – a family member, a colleague – would buy the car, we are happy to look at it case by case, on a market basis – in a separate sale.
The legal reason: the risk of reclassification and your VAT
If a "rental" contract contains a pre-set purchase price and a purchase right – let alone an obligation – that raises two serious questions:
- Licensed activity. A structure with a purchase right at a pre-set residual value at the end of the term is, in substance, close to an open-end finance lease – and that is a licensed financial service, which banks and leasing companies may provide, but a fleet-management provider may not.
- Reclassification risk in an audit. A "rental" written with an explicit purchase price is an inviting point of examination in a tax audit: it can be argued that the contract was in fact aimed at acquiring ownership – and as a general rule, VAT on the purchase of a passenger car is not deductible. We do not claim that every such audit would end in reclassification – but why would we leave such a surface open, with a risk reaching back several years, with surcharges, on your side?
So the absence of a purchase option is not inflexibility: it protects the tax-law integrity of the structure, and with it the safety of your VAT deduction.
The commercial reason: the asymmetry
Suppose we did offer a "buy it if you like" option, say at a pre-estimated price. What would happen? If the market stands above the estimated price, the renter buys the car – and pockets the difference. If below, they walk away – and the loss is ours. That is a deal in which one side can only win and the other can only lose: we carry the risk, the other side takes the upside. Such an asymmetric option is in fact never free – whoever gives it away for free collects its price somewhere else, typically in the fee or in the fine print. We do not like asymmetric relationships, which is why we do not offer such an option: the residual value is our risk, and we have priced it in – fairly, in both directions.
What happens instead at the end of the term?
At the end of the term you return the car and – if you wish – we bring the next one. The returned car then finds a new owner through our used-car sales, at market price. And here is an important possibility: if a person connected to the renter – a family member, a colleague – wants to buy it, let us know: we look at such requests case by case, on a market basis. This is not part of the rental contract and not a pre-set price – it is a separate, market-based sale in which the years of shared history also count. The goal – "keep the car in the family" – can be achieved, while the tax-law integrity of the structure remains intact.
There is no purchase option – because a predictable fee and deductible VAT are worth more than an option only one side can win. The residual value is our job; and a connected buyer's request is looked at case by case, on a market basis, at the end.
This article is general information, not legal or tax advice. Your accountant and tax adviser can assess your specific situation.
Related:
Frequently asked questions
Why don't you write into the contract that I can buy it at the end?
Because a pre-set purchase price would bring the rental close, in substance, to a finance lease: that is a licensed financial activity a fleet operator may not provide, and in an audit it would carry the risk of reclassification – and with it, of the VAT deduction on the rental fees being called into question. The missing option removes that risk.
And if I still want to buy it at the end of the term?
The renting company appearing as a direct buyer is exactly the situation we avoid for the reasons above. But if a person connected to you – a family member, a colleague – would buy it, contact us before the end of the term: we look at such requests case by case, on a market basis.
What will the price be at the end?
The real market price at that time – not a number set years earlier. We deliberately do not quote a pre-set price, because that is precisely what would put the structure's tax-law integrity at risk.
I've seen a rental with a purchase option at another fleet operator. How is that possible?
It is not our place to judge someone else's contract – but the licensing and reclassification risk above can arise with every "rental + pre-set purchase price" structure. Before signing one, ask your accountant and tax adviser.
