I am grateful to editor Jo and to Wragge and Co’s banking and
finance team for looking into my question about the legality of
contract hire agreements (see Motor Finance February 2010, End
of lease disputes). My query was over contracts that appear to
charge penalties for over-mileage and less than ‘reasonable’
condition when vehicles are returned, without allowance for
vehicles that are returned with less mileage than contracted or
better condition than ‘reasonable’ for the age and mileage.
With reference to sections 1 and 2 of the
article (“If the contract mileage is not exceeded there is no
breach of the agreement”; “the terms [of the finance agreement] do
need to provide for payment of an excess mileage charge if the
vehicle is returned early…”), I am still confused.
The point I was making with regard to
contract hire agreements was that when a car is returned – not
early, but at the normal end of the contract – if the mileage is
exceeded, as allowed for in the contract as a specific term with an
excess mileage charge stated as a pence per mile, a charge is
No one disputes this as the car is
certainly worth less; although I would challenge some of the excess
charges made, I accept this is accepted as a reasonable charge.
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However, if there is no balancing term that
allows the lessee to be paid a rebate as a result of the vehicle
being returned with less mileage on and therefore worth more, this
must surely be construed as a penalty.
I can understand the argument for a breach
if a lessee contracted to cover an exact mileage of, say, 30,000
miles and then exceeded this mileage by travelling 40,000 miles;
with no allowance included in the terms for excess mileage charges,
he is in breach of contract and therefore liable to pay
compensation that I assume would be established by comparing the
value of the car at 30,000 miles with a value at 40,000 miles and
expecting the lessee to make good the difference.
But this is not the case as the excess
mileage term is always included.
I believe there to be strong case under the Unfair
Terms in Consumer Contracts Regulations, but, more seriously, I am
still not convinced the excess mileage charge doesn’t represent a
In section 3 of the article (“[One] has to factor
in s99 of the Consumer Credit Act … If the contract mileage is not
exceeded, I do not think the owner can recover a pro rata charge or
damages by reason of the s99 cap”), it would seem this could be a
pretty dangerous position for those offering PCPs.
From what I read there is nothing to stop someone
who is close to the end of his PCP agreement, having paid over 50%
of the total amount due, and knowing the car is worth less than the
guaranteed final figure, partly as a result of his excess mileage,
simply voluntarily terminating the agreement and walking away,
avoiding the loss and the excess charge?
It beggars belief that leasing companies have
not identified this problem themselves.