Can You Defer a Lease Payment?

A lease payment represents a regular fee paid by a lessee to a lessor for the right to use an asset, such as real estate, vehicles, or equipment, without transferring ownership. These payments are formally outlined in a contract that specifies the terms, amount, and schedule. Individuals or businesses might consider deferring a lease payment when facing unexpected financial challenges, such as job loss, unexpected expenses, or economic downturns. This temporary postponement can provide financial relief during difficult times.

Situations Where Lease Payment Deferral is Possible

Lease payment deferral is not an automatic right but a discretionary offering by lessors, often contingent on specific circumstances and the lessee’s standing. Lessors may offer deferrals through hardship programs, especially during widespread economic challenges or in response to individual financial distress, such as job loss, medical emergencies, or significant business disruptions.

The possibility and approach to deferral can vary across different lease types. For instance, auto lease deferrals typically involve postponing one or more scheduled payments, which are then added to the end of the lease term. For real estate leases, both residential and commercial, landlords may agree to defer rent payments. Equipment leases might also offer deferral options, though terms can differ significantly based on the asset’s value and the lessor’s policies.

Payment history plays a significant role in deferral eligibility. Lessors are more likely to approve requests from lessees with a consistent record of timely payments, demonstrating reliability. Some lessors may require lease payments to be current before allowing a deferment. Conversely, a history of late or missed payments could make a deferral request less likely to be granted. Lessors need assurance that the lessee will be able to meet the revised payment terms after the deferral period.

Steps to Request a Deferral

Initiating a lease payment deferral involves a structured approach to communicate your situation to the lessor. First, identify the correct contact person or department within the lessor’s organization. This might be a dedicated financial hardship department, customer service, or a specific account manager. Reaching out proactively as soon as you foresee payment difficulty is recommended.

While a phone call can be an initial contact, it is crucial to follow up with a written request. This written documentation, whether email or formal letter, creates a record of your request and agreed-upon terms. The communication should state your account number, the reason for your deferral request, and your proposed deferral period, typically one to three months.

Be prepared to provide information and financial documentation to support your request. This could include proof of income changes, such as layoff notices or reduced work hours, or unexpected expenses. Some lessors may ask for financial statements or other records to assess the situation. The request should also include a proposed plan to repay deferred amounts, whether through a lump sum, increased payments over the remaining term, or an extension of the lease. A willingness to negotiate the terms, duration, and repayment structure can strengthen your position.

Financial and Contractual Implications of Deferral

A granted lease payment deferral carries several financial and contractual implications lessees must understand. Financially, deferring payments increases the total cost of the lease. Interest often continues to accrue on the outstanding balance during the deferral period, increasing the total amount owed. This accrued interest, along with the deferred principal, will need to be repaid.

Repayment of deferred amounts can be structured in various ways, such as adding payments to the end of the lease term, extending its duration. Alternatively, the deferred amount might be spread out and added to future regular payments, resulting in higher monthly payments. There might also be a requirement for a lump-sum payment at a specified future date.

Contractually, a deferral is not a simple waiver; it involves an amendment or addendum to the original lease agreement. This modification outlines the new payment schedule, deferral duration, and how deferred amounts will be repaid. It is essential to ensure any deferral agreement is in writing and signed by both parties for legal enforceability.

A properly executed deferral agreement generally does not negatively impact your credit score. If the deferral is agreed upon and documented by the lessor, it is reported as an agreed modification rather than a missed payment. However, failing to obtain a formal deferral and missing payments can lead to negative credit reporting, lowering your credit score and affecting future borrowing opportunities. Understanding these details helps in making an informed decision.