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{{Dial-A-Law TOC|expanded = autos}}
{{Dial-A-Law TOC|expanded = autos}}
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.
Leasing a vehicle is quite different from buying one. Leasing can offer lower monthly payments, but you typically spend more in the long run. Learn your rights if you lease.


==What is a lease?==
==Understand your legal rights==
A lease is an agreement to rent and use someone else’s property, in this case, a car. A lease is usually long term. And usually, you must be at least 19 years old to sign a lease. It can last from several months to several years. At the start of a lease, you make a first, or initial, payment. You may also have to pay a security deposit. After that, you make monthly 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.
===How leasing differs from buying===


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.
A '''lease''' is an agreement to rent and use someone else’s property, in this case, a vehicle. A lease can last from several months to several years. At the start of a lease, you make a first (initial) payment. You may also have to pay a security deposit. After that, you make monthly payments.


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


==What types of car leases are there?==
====Advantages of leasing====
*a '''straight lease'''—with this, you return the car when the lease ends and owe nothing more. This is rarely used now.
On the surface, leasing can be more appealing than buying. You typically get a newer vehicle. Your monthly lease payments can be much lower than the monthly payments on a car loan. Taxes may be lower because they are based on monthly payments (as opposed to the purchase price).  
*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?==
Many find they can afford a more expensive vehicle, or one with more options, if they lease.
A lease agreement is a legally binding contract, so make sure you understand it before you sign it. [http://www.bclaws.ca/civix/document/id/complete/statreg/447_78#section30 Section 30] of the BC ''[http://www.bclaws.ca/civix/document/id/complete/statreg/447_78 Motor Dealer Act Regulation]'' 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).


[http://www.bclaws.ca/civix/document/id/complete/statreg/96410_01#section16 Section 16(c)] of the ''[http://www.bclaws.ca/civix/document/id/complete/statreg/96410_01 Sale of Goods Act]'' requires a person selling or leasing goods to ensure the goods have no lien or charge on them, or to tell the person leasing the goods about the lien and have them agree to the lease knowing about the lien.  
====Disadvantages of leasing====
But there are disadvantages to leasing a vehicle.  


[http://www.bclaws.ca/civix/document/LOC/complete/statreg/--%20B%20--/Business%20Practices%20and%20Consumer%20Protection%20Act%20%5bSBC%202004%5d%20c.%202/00_Act/04002_06.xml#section101 Section 101] of the ''[http://www.bclaws.ca/civix/document/id/complete/statreg/04002_00 Business Practices and Consumer Protection Act]'' 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.
One is the dealer owns the vehicle, not you. This means the dealer may place restrictions on who may drive it. You may also have to follow — and pay for — a set maintenance schedule.  


==What is a cooling-off period?==
And at the end of the lease, you haven’t built up '''equity''' in the vehicle the way you would have if you had bought. At the end of paying off a car loan, you own the vehicle. At the end of a lease, you own nothing.  
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.
The result is that leasing typically costs you more than borrowing money to buy a vehicle. For more on buying a vehicle, see our information on [[Buying a Used Car (Script 197)|buying a used car (no. 197)]].


==What can happen if you have trouble paying a lease?==
===Types of vehicle leases===  
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.


The dealer or creditor could also extend a lease if you are having trouble paying it. That might create a new lease and the dealer or creditor would have to give you a new disclosure statement. Even if an extension is not a new lease, it would change the term and your total cost, and those changes would have to be disclosed. And if the dealer or creditor invites you to delay a payment, they must tell you if you will pay interest on the delayed payment.
There are two types of vehicle lease.


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 [[Buying Goods on Credit, Credit Cards and Credit Bureaus (Script 246)|246]], called “Buying Goods on Credit, Credit Cards & Credit Bureaus”.
First, a '''straight lease'''. With this, you return the vehicle when the lease ends and owe nothing more. This is rarely used.


==What are the differences between consumer and business leases?==
Second, a '''lease with an option to purchase'''. This comes in two forms — open and closed. In a closed lease with an option to purchase, you pay an agreed-on amount if you decide to buy the vehicle at the end of the lease.  
You don't normally get a tax deduction for a consumer lease, only for a business lease. Check with [http://www.cra-arc.gc.ca/ Canada Revenue Agency] for details.


For a business lease, you don't get the protection of 3 laws: the ''[http://www.bclaws.ca/civix/document/id/complete/statreg/04002_00 Business Practices and Consumer Protection Act]'', the ''[http://www.bclaws.ca/civix/document/id/complete/statreg/96359_01 Personal Property Security Act]'' or the ''[http://www.bclaws.ca/civix/document/id/complete/statreg/96316_01 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.
In an '''open lease''' with an option to purchase, you may have to pay an extra amount at the end of the lease. How much more you have to pay is explained in the lease agreement. At the beginning of the lease, a dealer estimates what a vehicle will be worth at the end of the lease (the '''residual value''') and then calculates the monthly payments based on that estimate. If the vehicle 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 vehicle has more than normal wear.


==What happens when a lease ends?==
===What the lease must tell you===
There are several possible outcomes when a lease ends. You should discuss them before you sign the lease. 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).
A '''lease agreement''' is a legally binding contract. Make sure you understand it before you sign it. Under the [https://www.canlii.org/en/bc/laws/regu/bc-reg-447-78/latest/bc-reg-447-78.html#sec30_smooth law in BC], the lease agreement must include:
*a summary of costs and credits for any extended warranty 
*all express warranties and guarantees made by the manufacturer or 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 any restriction on who can drive it and any requirement for permission to take the vehicle outside of BC
*the amount of tax in each periodic payment you must make under the agreement
*the cooling-off period (described below)


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. Some dealers may also 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.
====The dealer must give you a disclosure statement====
As well, another [https://www.canlii.org/en/bc/laws/stat/sbc-2004-c-2/latest/sbc-2004-c-2.html#sec101_smooth law in BC] requires the dealer to give you a '''disclosure statement''' before you sign the lease. Read it carefully. It has all the key terms and details of the lease.


The dealer can use your security deposit to pay for kilometer overages or damage to the vehicle that must be repaired. The lease agreement should say when you get your security deposit back and when the dealer can keep it.
====The dealer must tell you if there is a lien on the vehicle====
Another [https://www.canlii.org/en/bc/laws/stat/rsbc-1996-c-410/latest/rsbc-1996-c-410.html#sec16_smooth BC law] requires a person leasing goods to tell you if there is any '''lien''' or charge on the goods in favour of a third party. A lien is a legal claim made on property — such as a vehicle — to make sure someone pays a debt. Liens are attached to a vehicle, not to its owner. If you lease a vehicle with a lien on it, the lien holder can take the vehicle from you as payment for the debt.


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 [http://mvsabc.com/glossary/ glossary of buying terms].
===You can change your mind during the 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 vehicle 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.  


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 a vehicle meets the Act. 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.
Some days 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, and the dealership is closed on Sunday, Monday is the cooling-off day when you can cancel the contract.


==Summary==
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.
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 [http://mvsabc.com/consumers/resources/vehicle-buying-guide/ buying guide] on the website of the [https://mvsabc.com/ Vehicle Sales Authority of BC]. It has information on consumer help and complaints. This website also describes the [http://www.mvsabc.com/consumers/compensation-fund Motor Dealer Customer Compensation Fund] (which may cover financial losses from leasing a vehicle if the dealer is no longer in business).  
==Common questions==
 
===What can happen if I have trouble paying under a lease?===
If you '''default''' on a lease (by, for example, failing to make your lease payments), the leasing company may be able to take the vehicle back ('''seize''' it) or sue you for all remaining lease payments. Depending on the lease agreement and the use you put the vehicle to, they may be able to do both.
 
====If the vehicle is primarily for personal use====
When you lease a vehicle, the agreement typically gives the leasing company a '''security interest''' in the vehicle. This is a property interest you give them to ensure you make the lease payments. 
 
Under the [http://canlii.ca/t/8495 law in BC], two rules kick in to protect you if the vehicle is used primarily for “personal, family or household purposes”. If you default on the lease, the leasing company can seize the vehicle. Or they can sue you for the amount owing on the lease. But they can’t do both. This is called the “'''seize or sue rule'''”.
The “'''two-thirds rule'''” comes into play if you’ve paid back at least two-thirds of what you owe under a lease for personal use. In this case, the creditor needs a court order before seizing the vehicle. If you’ve paid back less than two-thirds, the creditor can seize the vehicle without going to court.
 
====If the vehicle is primarily for business use====
If the vehicle is used primarily for business purposes, things are different. If you default on the lease, a creditor may be able to sue you '''and''' seize the vehicle. For more on the law relating to secured debts, see our information on [[Buying Goods on Credit, Credit Cards and Credit Bureaus (Script 246)|buying on credit (no. 246)]].
 
===Are there other ways the law is different for a business lease?===
When you lease a vehicle for business purposes, you can deduct the lease payments from the business’ income for tax purposes. You don’t typically get a tax deduction for a consumer lease. Check with [http://www.cra-arc.gc.ca/ Canada Revenue Agency] for details.
 
Several BC laws offer protection when you lease goods for personal use, but not when you lease goods for business use. For example, under the ''[https://www.canlii.org/en/bc/laws/stat/rsbc-1996-c-410/latest/rsbc-1996-c-410.html#sec20_smooth Sale of Goods Act]'', if you lease a new car, a term in the lease agreement waiving the legal warranty implied by law is void — if the lease is for personal use. If the lease is for business purposes, such a waiver is not void.
 
{| class="wikitable"
|align="left"|'''Tip'''
If you want to lease a vehicle for business purposes, you should get legal and accounting advice — before you lease.
|}
 
===What happens when a lease ends?===
There are several possible outcomes when a lease ends. You should discuss them before you sign the lease. You may still owe money when the lease ends. The lease may say the vehicle 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.
 
With a '''straight lease''', you return the vehicle and owe nothing more. With a '''closed lease with an option to purchase''', you pay an agreed-on amount if you decide to buy the vehicle. 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 vehicle has more than normal wear. Some dealers may also want to charge other fees at the buy-out time. Before you sign a lease, ask about any fees the dealer will charge at the time of buy-out. Discuss these fees with the dealer and get them in writing — before you sign the lease agreement.
 
The dealer can use your security deposit to pay for kilometer overages or damage to the vehicle that must be repaired. The lease agreement should address when you get your security deposit back and when the dealer can keep it.
 
===What if I decide to buy the vehicle at the end of the lease?===
If you buy a vehicle at the end of the lease, it’s a new transaction. The dealer must make all the required declarations about the vehicle as they would on any sale, including the declaration that the vehicle meets the safety requirements of the ''[http://canlii.ca/t/847n Motor Vehicle Act]'' when they sell it. For details of the required declarations, see People’s Law School’s information on [https://www.peopleslawschool.ca/everyday-legal-problems/cars-getting-around/buying-or-repairing-car/buying-used-car-sale buying a used car]. 
 
How a dealer ensures 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 a vehicle meets the Act. 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.
 
==Get help==
 
===If you’re concerned about a dealer===
The '''Vehicle Sales Authority of BC''' helps resolve complaints with licensed car dealers. Their website includes a [http://mvsabc.com/consumers/resources/vehicle-buying-guide/ vehicle buying guide] and information about a  [http://www.mvsabc.com/consumers/compensation-fund compensation fund] if you lease from a dealer that goes out of business.  
:Toll-free: 1-877-294-9889
:Web: [http://www.mvsabc.com/ mvsabc.com]




[updated June 2018]
[updated June 2018]


'''The above was last reviewed for accuracy by Ian Christman and edited by John Blois.'''
'''The above was last reviewed for legal accuracy by Ian Christman.'''


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