The Consumer Protection Act requires that:

1. Conditions and warranties of merchantable quality, fitness for purpose and freedom from liens (in the Sale of Goods Act) are extended to include leased vehicles.
2. Restrictions apply to the amount charged on residual obligation (open-end) leases.
3. Full disclosure of the cost of credit is included in lease agreements and advertisements.

CPA (Regulation 73) requires vehicle lease advertisements disclose:

1. That it is a lease.
2. Length of the lease.
3. Any payment to be made before or at the beginning of the lease.
4. The amount of the monthly payment.
5. Details of any other payments and how they are calculated.
6. The amount that the lessee will be charged for exceeding the mileage allowance and how it is calculated.
7. Annual percentage rate for the lease (this must be displayed as prominently as the most prominently disclosed payment that forms part of the lease).

Disclosure Statement for a Lease (s.74)

Under the CPA, disclosure must be made before the agreement is signed or before accepting payment.

Disclosure statements must be in writing and disclose:

1. That it is a lease.
2. Length of the lease.
3. A fair and accurate description of the leased vehicle.
4. Lease value of the vehicle (this should be comparable to what a cash customer would pay for the vehicle).
5. Details of any advance to be made by the person leasing the vehicle.
6. Any payment to be made before or at the beginning of the lease.
7. Amount of the monthly payment.
8. Number of monthly payments.
9. “Capitalized amount.”
10. “Estimated residual value” of the vehicle.
11. If it is an “option lease,” complete details of how the option may be exercised.
12. If it is a “residual obligation lease,” complete details of the lessee’s liability at the end of the lease.
13. Circumstances, if any, of early termination of the lease by the lessee and/or the lessor, and how the lessee’s payment is calculated.
14. Any other payment by the lessee (including calculation for unreasonable or excessive wear or use).
15. Implicit finance charge.
16. Annual percentage rate.
17. Total lease cost.

Maximum Liability Under a Lease; “Residual Obligation Lease”

CPA Regulation 76 details the maximum liability of the lessee under a “residual obligation lease.” The maximum liability of the lessee at the end of the lease term of a residual obligation lease, after returning the leased goods to the lessor, is the amount determined using the formula:

P + (V – R)

in which:

“P” is the amount that the lessee is required to pay to the lessor at the end of the lease term if the realizable value of the leased goods at the end of the lease term equals the estimated residual value of the lease goods. This is what the lessee needs to pay regardless of what the vehicle is worth at the end of the lease, such as a flat-rate termination charge of $500.

Note: You cannot charge these amounts unless they are disclosed in the original lease document.

“V” is the estimated residual value of the leased goods.

“R” is the realizable value of the leased goods at the end of the lease term, as determined under subsections (2), (3) and (4).

Subject to subsections (3) and (4), the realizable value of leased goods at the end of the lease term is the greatest of:

1. The price, exclusive of taxes, at which the lessor disposes of the leased goods.
2. 80 per cent of the estimated residual value of the leased goods.
3. The amount determined by subtracting, from the estimated residual value of the leased goods, the product obtained by multiplying the average monthly payment under the lease by three.

If the amount determined under clause (2) (b) is the greatest of the three amounts, the realizable value of leased goods at the end of the lease term is the amount obtained by subtracting, from the amount determined under clause (2) (b), that part of the difference between the amount determined under clause (2) (b) and the amount determined under clause (2) (a) that is attributable to unreasonable or excessive wear or use of the leased goods or to damage to the leased goods for which the lessee is responsible under the lease.

If the amount determined under clause (2) (c) is the greatest of the three amounts, the realizable value of leased goods at the end of the lease term is the amount obtained by subtracting, from the amount determined under clause (2) (c), that part of the difference between the amount determined under clause (2) (c) and the amount determined under clause (2) (a) that is attributable to unreasonable or excessive wear or use of the leased goods or to damage to the leased goods for which the lessee is responsible under the lease. The effect of the wording is to limit what the dealer can claim in “unreasonable or excessive wear or damage” to the leased vehicle.