How to Strengthen Your Rental Agreement for a Changing World

For rental companies, it’s important to include certain terms and clear language in rental agreements. Additionally, rental agreements need to be updated to address ever-changing issues faced by the rental industry.

“Legal challenges and complaints can and do occur,” said David Purinton, president of PurCo Fleet Services Inc., a claims management company for the car rental industry. “When they do, the best reinforcement for your position is your rental agreement. It is vital to keep it updated with the latest language.”

During the 2022 International Car Rental Show, Purinton led a seminar focused on the items that should be standard in today’s vehicle rental agreements – and language that should be avoided. Additionally, he addressed some arguments that renters like to make and how best to address them.

Checklist for Rental Agreements

A rental agreement serves as a legal document that puts the contract between both parties in writing. It’s often made up of two parts: the signed rental agreement and terms & conditions.

“With both commercial and consumer ramifications at play in short-term rentals, the agreement should be carefully drafted, frequently reviewed, and periodically updated to ensure that the documents fulfill their intended purposes, even in light of changing law,” said Purinton.

To start, the rental agreement needs to include the renter’s name and contact information, including address, email address, phone number, driver’s license number, and date of birth. Additionally, the rental vehicle’s license plate number, make, model, year, and VIN should be written in the agreement.

Next, a rental company needs to disclose any electronic vehicle tracking information. That can include electronic tolls, GPS, and other telematics that transmit information about the vehicle and its location during the rental.

The rental agreement should feature a section discussing types of damage waivers (also known as CDW, PDW, LDW, etc.), optional insurance products, and other counter products. Optional insurance products include primary or supplemental liability (PLI or SLI). Other counter products can consist of personal effects coverage, fuel purchase options, satellite radio, GPS, tolls, and roadside assistance options.

The agreement needs to include language about the return policies and procedures such as location for turn-in and due-back information. Describe how your rental company handles early returns in this section.

Does your rental company have any geographic area restrictions? If a driver isn’t allowed to cross into another state or county with the rental vehicle, it needs to be mentioned in the rental agreement.

A mileage charge statement should be included in the rental agreement. Is it “unlimited” for renters or is there a cost per mile?

Checklist for Terms & Conditions

Known as T&Cs, terms of use, or a rental pamphlet, terms and conditions make up the second part of a rental agreement.

This part of the rental agreement discusses several items including definitions, warranties, prohibited uses, equipment/service options, payments (info about credit cards), charges (like toll and traffic violation fees), personal information/privacy statement, and liability for harm to others (accident handling/reporting). Miscellaneous items can include information on modifications, breach, jurisdiction, or attorney’s fees.

Purinton discussed including a statement on “bailment.” He described bailment as delivering possession of something for a specific purpose without relinquishing ownership of it. There is an understanding that it will be returned at a later time in the same condition less ordinary wear and tear. A car delivered to a mechanic for repair is one example; a car delivered to a renter on lease is another.

“With one word, we create a wonderful relationship between the rental company and the renter,” said Purinton. “We want to make sure that bailment is mentioned in the rental agreement.”   

Information about damage or loss responsibility should be addressed in the rental agreement. Purinton mentioned that the language should discuss how the rental company handles costs of vehicle repairs and calculation of damages.

Additionally, loss of use can be mentioned in this section. In the Koenig case in 2012, the court held that loss of use is an “intrinsic” loss when there is a rental car that has been damaged. In other words, a rental car company does not need to separately show lost profits to recover loss-of-use damages. Purinton recommended being able to articulate the reasoning behind loss of use in your own words and style in the rental agreement.

“It’s important to keep updating your terms and conditions,” said Purinton. “I’m going to suggest that companies do that every year. Using your rental agreement terms, we can recover money on assigned files.”

Liability Protection

A rental agreement should help protect a rental company from liability claims of third parties harmed by renters. Known as the Graves Amendment, this law passed in 2005 stopped states from placing vicarious liability on short-term rental companies. Therefore, a rental company won’t be held liable for the harm a renter might cause to a third party during a rental.

In the rental agreement, a rental company needs to understand the Graves Amendment and clearly explain this protection, said Purinton.

Additionally, the rental agreement should mention that the company has a right to subrogation. According to Purinton, a right to subrogation isn’t found in too many rental contracts but should be included. 

Examples of Renter Arguments

Purinton provided examples of common arguments made by renters. The first one involves an “adhesion contract,” which is a contract that doesn’t provide an opportunity for bargaining or negotiating. According to Purinton, renters will sometimes argue that rental agreements are contracts of adhesion; however, a renter has choices. The renter chooses a specific vehicle and then signs the rental agreement, with optional selections presented along with written terms and conditions.

“Because renters sometimes argue that rental agreements are contracts of adhesion, it’s especially important to make the terms of the rental agreement clear and unambiguous,” said Purinton.

In Purinton’s experience, courts interpreting adhesion contracts usually accept the meaning of any words that are clear, but any ambiguities could be interpreted in favor of the party perceived to have less bargaining power.

Another common renter argument involves conversations outside the rental agreement. Sometimes renters will say that promises were made to them at the counter during checkout that are outside the extent of the rental agreement. Usually, the words within the rental agreement are where courts focus their interpretation of the intent of the involved parties, said Purinton. Anything talked about at the counter (or the time of the signing of the rental agreement) is subject to being excluded if the language in the agreement is clear.

Another renter argument can occur when a contract isn’t signed during the vehicle checkout process. This can happen when a corporate agreement or customer loyalty program allows the renter to go directly to the vehicle without signing a record. Purinton recommended that a rental location keep an original or legible copy of such membership agreement on file. Without proof of the agreement to the rental terms and conditions, the company can risk having no written agreement with the renter.

“The renter may argue in such circumstances that he or she is not bound by the rental agreement or its terms and conditions, making it harder to recover damage losses,” said Purinton.

Finally, Purinton notes he is not a lawyer but has been involved in a number of court cases recovering on renter files that have given him this firsthand experience. His final piece of advice is for rental car agencies to find a good lawyer they can pair with to help them with legal issues as they arise – including preparing and updating the rental car agreement. “That is one more invaluable tool,” he said. “Don’t go it alone when you move into territory you may not be familiar with.”

Purinton credits his long-term relationships with inside and outside legal counsel as having helped him establish and achieve the success he has.