How is the depreciation reserve credited for Canopy Lawn Care vehicle leases?
Canopy_Lawn_Care Franchise · 2025 FDDAnswer from 2025 FDD Document
e is delivered to Lessee on any day other than the first day of a month, monthly rental payments will begin on the first day of the next month. In addition to the monthly rental payments, Lessee agrees to pay Lessor a pro-rated rental charge for the number of days that the Delivery Date precedes the first monthly rental payment date. A portion of each monthly rental payment, being the amount designated as "Depreciation Reserve" on the applicable Schedule, will be considered as a reserve for depreciation and will be credited against the Delivered Price of the Vehicle for purposes of computing the Book Value of the Vehicle under Section 3(c). Lessee agrees to pay Lessor the "Total Initial Charges" set forth in each Schedule on the due date of the first monthly rental payment under such Schedule. Lessee agrees to pay Lessor the "Service Charge Due at Lease Termination" set forth in each Schedule at the end of the applicable Term (whether by reason of expiration, early termination or otherwise).
- (b) In the event the Term for any Vehicle ends prior to the last day of the scheduled Term, whether as a result of a default by Lessee, a Casualty Occurrence or any other reason, the rentals and management fees paid by Lessee will be recalculated in accordance with the rule of 78's and the adjusted amount will be payable by Lessee to Lessor on the termination date.
- (c) Lessee agrees to pay Lessor within thirty (30) days after the end of the Term for each Vehicle, additional rent equal to the excess, if any, of the Book Value of such Vehicle over the greater of (i) the wholesale value of such Vehicle as determined by Lessor in good faith or (ii) except as provided below, twenty percent (20%) of the Delivered Price of such Vehicle as set forth in the applicable Schedule. If the Book Value of such Vehicle is less than the greater of (i) the wholesale value of such Vehicle as determined by Lessor in good faith or (ii) except as provided below, twenty percent (20%) of the Delivered Price of such Vehicle as set forth in the applicable Schedule, Lessor agrees to pay such deficiency to Lessee as a terminal rental adjustment after the end of the applicable Term (subject to Lessor's right to recoup any amounts Lessor would owe to Lessee under this Section 3(c) against any obligations of Lessee to Lessor under this Agreement).
Source: Item 23 — RECEIPT (FDD pages 55–199)
What This Means (2025 FDD)
According to Canopy Lawn Care's 2025 Franchise Disclosure Document, a portion of each monthly rental payment for vehicle leases is designated as a "Depreciation Reserve" on the applicable Schedule. This amount is specifically set aside and credited against the Delivered Price of the vehicle. This credit is used when calculating the Book Value of the vehicle at the end of the lease term, as detailed in Section 3(c) of the lease agreement.
The "Book Value" of the vehicle is calculated by starting with the "Delivered Price" of the vehicle, then subtracting the total Depreciation Reserve paid over the lease term. Any accrued and unpaid rent or other amounts owed by the lessee are then added to this figure. This Book Value is a key component in determining whether the franchisee owes additional rent or is due a refund at the end of the lease.
Specifically, at the end of the lease term, Canopy Lawn Care compares the Book Value to the greater of (i) the wholesale value of the vehicle or (ii) 20% of the Delivered Price. If the Book Value exceeds this greater value, the franchisee must pay the difference to Canopy Lawn Care as additional rent. Conversely, if the Book Value is less, Canopy Lawn Care will pay the deficiency to the franchisee as a terminal rental adjustment, although they can recoup any amounts owed against other obligations of the franchisee.
However, these calculations are subject to certain conditions. If the lease term exceeds 48 months, the average mileage exceeds 15,000 miles per year, or the vehicle has been subject to damage or excessive wear and tear, the 20% of Delivered Price clause is disregarded. This means that the Book Value will be compared only to the wholesale value of the vehicle, potentially increasing the franchisee's financial responsibility at the end of the lease.