Leasing a Car

This script explains leasing a car in BC for personal or family use (consumer leases). It does not cover business leases. Cars are expensive machines. Before you lease one, you should compare leasing with buying to see which is best for you.

What is a lease?

A lease is an agreement to rent, or use someone else’s property, in this case, a car. A lease is usually long term. It can last from several months to several years. At the start of a lease, you make a first, or initial, payment on the lease. You may also have to pay a security deposit. After that, you make monthly lease payments.

Leasing is an alternative to buying—both have advantages and disadvantages. If you lease, you don’t own the car. And you have different rights and responsibilities than if you buy.

Leasing often means a lower first (initial) payment and monthly payments compared to buying. Leasing may also mean lower taxes because taxes are based on the monthly payments, not on the total purchase price. Many drivers can afford a more expensive car, or one with more options, if they lease.

On the other hand, you pay interest on a lease. So it may cost more, in total, to lease than to buy a car without financing. And when you lease, the dealer or lease company still owns the car and may control who drives it and the maintenance schedule you have to pay for—even though you drive and insure the car, and make monthly lease payments for it.

What types of car leases are there?

• a straight lease—with this, you return the car when the lease ends and owe nothing more. This is only used rarely now.
• a lease with an option to purchase—this comes in two forms: open and closed
  • closed—you pay the agreed-on amount if you decide to buy the car at the end of the lease.
  • open—you may have to pay an extra amount at the end of the lease. How much more you have to pay is set in the lease contract. Before signing a lease, a dealer estimates what a car will be worth at the end of the lease (the residual value) and then calculates the monthly payments based on that estimate. If the car is worth less at the end of the lease, you have to pay more to make up the difference. You may also have to pay extra if you drove more than the lease allowed or if the car has more than normal wear.

What must a lease agreement tell you?

A lease agreement is a legally binding contract, so make sure you understand it before you sign it. Section 30 of the BC Motor Dealer Act Regulation (available at www.bclaws.ca) requires a lease agreement to have the following information:

• a summary of costs and credits for any extended warranty due when you sign the lease.
• all express warranties and guarantees for the vehicle made by the manufacturer or motor dealer.
• who is responsible for maintaining and servicing the vehicle.
• a description of any insurance, including types and amounts of coverage, that you must provide and pay for.
• any limit on your use and enjoyment of the vehicle, including who can drive it and any requirement to get permission to take the vehicle outside of BC.
• the amount of tax in each periodic payment you must make under the agreement, based on the tax rate at the time of disclosure.
• the cooling-off period (described in the next section).

Section 101 of the Business Practices and Consumer Protection Act (available at www.bclaws.ca) requires the dealer to give you a Lease Disclosure Statement before you sign the lease. Read it carefully. It has all the key terms and details of the lease.

What is a cooling-off period?

You get one business day after you sign the lease to cancel it – this is the cooling-off period. During this time, the law requires the car to stay with the leasing company. If you change your mind in that time, you can cancel the lease and get your money back without penalty. While you have the whole day to cancel, it’s better to tell the dealer during business hours in writing. Some days that do not count in the cooling-off period: statutory holidays, Sundays, and any day the dealership is closed do not count. So if you sign a lease on a Saturday, Monday is the cooling-off day when you can cancel the contract.

You can waive (give up) the cooling-off period. If you want to do that, you must do it in writing. Read the lease documents carefully because they may include a waiver.

What can happen if you have trouble paying a lease?

If you default on a consumer lease (stop paying it), the dealer or creditor may be able to take the car back (seize it) or sue you for all remaining lease payments. Depending on the type of lease (a security lease or a true lease), they may be able to do both. You would need legal advice on that and on whether the “seize or sue” rule and the “two-thirds rule” apply. Business leases are different—a dealer or creditor may be able to sue you and seize the car. Generally, your rights and responsibilities depend on whether you sign a lease or a secured lease agreement. You can talk to a lawyer before you lease to find out what type of agreement you are signing. As well, check script number 246, called “Buying Goods on Credit, Credit Cards & Credit Bureaus”.

What are the differences between consumer and business leases?

You don't normally get a tax deduction for a consumer lease, only for a business lease. Check with Canada Revenue Agency for details (www.cra-arc.gc.ca).

For a business lease, you don't get the protection of 3 laws: the Business Practices and Consumer Protection Act, the Personal Property Security Act or the Motor Dealer Act. So if there's a mechanical problem with the car, you still have to continue paying the lease. The Sale of Goods Act still give you some protection that the car is suitable for its purpose—but only if you lease the car mainly for personal, family, or household purposes. If you want to lease for business purposes, you should first get legal and accounting advice—before you lease. All these laws are available at www.bclaws.ca.

What happens when a lease ends?

You may still owe money when the lease ends. The car goes back to the dealer, or you may have an option to buy it for a certain price. Whether you owe money depends on the type of lease you signed (types of leases are explained earlier in this script).

With a straight lease, you return the car and owe nothing more. With a closed lease with an option to purchase, you pay just the agreed-on amount if you decide to buy the car. But with an open lease with an option to purchase, you may have to pay an extra amount. You may also have to pay extra if you drove more than the lease allowed or if the car has more than normal wear. And dealers may want to charge other fees at the buy-out time. So before you sign a lease, ask about any fees that the dealer will charge at the time of buy-out. Discuss them with the dealer and get them in writing—before you sign the lease agreement.

If you buy a vehicle at the end of the lease, it’s a new transaction. So motor dealers and salespeople must make all their required declarations, especially the declaration that the vehicle meets the safety requirements of the Motor Vehicle Act when they sell it. The declarations are listed in the Vehicle Sales Authority of BC glossary at www.mvsabc.com/glossary-of-terms.

How a dealer ensures that a vehicle meets the Motor Vehicle Act is a business decision—the Act does not say how. Generally, a dealer will do an inspection to ensure the vehicle meets the Act’s requirements. Depending on the original lease, the dealer may charge you for the inspection. Discuss it with the dealer before you agree to lease a vehicle.

Summary

Leasing a car is quite different from buying one. If you decide to lease, you have less protection than if you buy. Leases are usually long term and normally help the dealer more than you, the consumer. Read the lease agreement carefully and consider taking it to a lawyer before you sign.

For more information on leasing a car, check the article titled "Is Leasing a Vehicle for me?" on the website of the Vehicle Sales Authority of BC. It has information on consumer help and complaints. This website also describes the Motor Dealer Customer Compensation Fund (which may cover financial losses from leasing a vehicle if the dealer is no longer in business).

[updated July 2014]

---

---

In law, the re-examination of a term of an order or agreement, usually to determine whether the term remains fair and appropriate in light of the circumstances prevailing at the time of the review. In family law, particularly the review of an order or agreement provided for the payment of spousal support. See "de novo," "family law agreements," "order" and "spousal support."

In law, to formally deliver documents to a person in a manner that complies with the rules of court. Service may be ordinary (mailed or delivered to a litigant's address for service), personal (hand-delivered to a person), or substituted (performed in a way other than the rules normally require). See "address for delivery," "ordinary service," "personal service" and "substituted service."

An agreement that requires payment for the use of property, under which the owner of property, like a car or an apartment, gives up the right to occupy and use that property in exchange for a sum of money. A "lessor" is the person who retains ownership of the property and receives money for its use. A "lessee" is the person who purchases the right of possession and use of the property.

Something which can be owned. See "chattels" and "real property."

(1) In law, a court proceeding; a lawsuit; an action; a cause of action; a claim. (2) A historic decision of the court; case law. See "action," "case law, " "court proceeding," and "precedent."

In law, a phrase used to indicate secondary relief or a secondary ground of relief in a claim or application, usually presented as an option to the primary relief or primary ground of relief sought. For example, "I'd like to have all of the house but, in the alternative, I'll take half." See “motion," “pleadings," and “relief."

In family law, an antiquated term referring to child support and spousal support. See "child support" and "spousal support."

An agreement between two or more people, giving them obligations towards each other that can be enforced in court. A valid contract must be offered by one person and accepted by the other, and some form of payment or other thing of value must generally be exchanged between the parties to the contract.

(1) In law, a requirement or obligation to honour and abide by something, such as a contract or order of the court. A judge's order is "binding" in the sense that it must be obeyed or a certain punishment will be imposed. (2) The principle that a higher court's decision on a point of law must be followed by a lower court. See "contempt of court" and "precedent."

In law, a calculation of the allowable legal expenses of a party to a court proceeding, as determined by the Supreme Court Family Rules. The party who is most successful in a court proceeding is usually awarded their "costs" of the proceeding. See "account," "bill of costs," "Certificate of Costs or Expenses" and "lawyer's fees."

A step in a court proceeding in which each party advises the other of the documents in their possession which relate to the issues in the court proceeding and produces copies of any documents the other side requests before trial. This process is regulated by the rules of court, which put each party under an ongoing obligation to continue to advise the other of new documents coming into their possession or control. The purpose of this step is to encourage the settlement of court proceedings and to prevent a party from springing new evidence on the other party at trial.

To give up a right or entitlement, or the opportunity to assert a right or enforce an entitlement. See "release."

In law, failing to do something which is either optional or mandatory, such as failing to respond to an application or to a claim within the time limits set out in the rules of court. See "default judgment."

A person licensed to practice law in a particular jurisdiction by that jurisdiction's law society. See "barrister and solicitor."

In law, a pronouncement of the court about a fact or a state of affairs, such as a declaration that a marriage is void or that a person is the guardian of a child. Not to be confused with an order, which is a mandatory direction of the court requiring a party to do or not do something. See "order."

In law, (1) a judge's conclusions after hearing argument and considering the evidence presented at a trial or an application, (2) a judgment, or (3) the judge's reasons. A judge's written or oral decision will include the judge's conclusions about the relief or remedies claimed as well as their findings of fact and conclusions of law. A written decision is called the judge’s "reasons for judgment." See "common law," "conclusions of law" and "findings of fact."