Lemon law for leased vehicles: what you get and how it works

The lessee is the consumer

Both MMWA and most state lemon laws define the "consumer" broadly enough to include lessees. The manufacturer's warranty obligation runs to the person using the vehicle, not to the legal title holder. If you're leasing the vehicle and the manufacturer fails to repair a defect after a reasonable number of attempts, you have rights.

This is sometimes surprising to consumers, who assume that because the vehicle is owned by the leasing company, the leasing company is the proper claimant. It's not. The lessee — the person making payments and using the vehicle — is the consumer for warranty purposes.

What the remedies look like

Lemon-law remedies for leased vehicles typically take one of three forms:

• Lease buyout by the manufacturer. The manufacturer purchases the vehicle from the leasing company and refunds the lessee's lease payments (minus a usage offset). The lessee walks away with a refund and no further lease obligation.
• Lease termination with consumer hold-harmless. The lease is terminated early, the leasing company is paid off by the manufacturer, and the lessee is released from any deficiency obligation.
• Cash settlement. Our preferred remedy in most cases — the manufacturer pays a cash sum to the lessee to compensate for the defect, the lease continues, and the lessee retains the vehicle for the remainder of the lease term.

Why cash settlements often work better for lessees

A lease buyout sounds appealing in theory: the manufacturer takes the defective vehicle back and you're refunded. In practice, the buyout often produces a worse net outcome than a cash settlement for several reasons:

• The "usage offset" in a buyout is calculated based on miles driven. For a high-mileage lessee, this offset can be substantial.
• The lessee then needs to acquire a replacement vehicle, often in a market where prices are higher than when the original lease started.
• The replacement vehicle may have its own defects.

A cash settlement avoids these complications. The lessee keeps the vehicle (which they'll be returning at lease end anyway, regardless of defect), receives compensation for the diminished value of the defective vehicle, and continues the lease without disruption. At lease end, the vehicle goes back to the leasing company as scheduled.

The leasing company's role

The leasing company is the title holder but typically does not need to be a party to the litigation. Our practice is to notify the leasing company that a claim is being made, but the substantive claim is between the lessee and the manufacturer.

One exception: if the resolution involves a lease buyout or early lease termination, the leasing company's consent is required for the title transfer or the lease termination. This is typically a straightforward administrative step once the manufacturer agrees to the buyout terms.

Mileage caps and lease term considerations

Leased vehicles often hit certain procedural thresholds faster than purchased vehicles:

• Days out of service. Many state lemon laws presume a defect is non-conforming after 30 days out of service. Lessees who relied on the vehicle for daily commuting often hit this threshold quickly when the defect requires extended service-center time.
• Repair attempts. Lease terms are typically 24 to 36 months. A vehicle with three repair attempts on the same defect within a 12-month lease window is a strong candidate for a lemon-law claim.
• End-of-lease deadline. If the lease is approaching its end, claims should be initiated before vehicle return. Once the vehicle is returned to the leasing company, the lessee's leverage decreases significantly.

What you should do

If you're leasing a vehicle with a documented defect that hasn't been resolved after multiple repair attempts, take our case quiz. We will tell you on the intake call whether the facts support a real claim and which remedy makes sense given your specific lease terms.