A customer entered into a residual value leasing contract with a leasing finance company for the purchase of a new car from a garage. The vehicle supplier advised the customer to pay a high interest rate but set a low residual value in the leasing contract, so as to be able to purchase the car at a lower price at the end of the leasing period. At the end of the lease, the customer contacted the finance company and the vehicle supplier to purchase the leased car at the contractually defined residual value. However, the finance company replied that the leasing contract did not provide for any purchase option, but instead required the customer to return the leased car at the end of the contract. When contacted by the lessee, LeaseTransfer was able to help. Even though the provisions of the leasing contract corroborated, in our view, what the leasing company had said. LeaseTransfer therefore advised the lessee to settle the matter directly with the supplying garage.
On several occasions, LeaseTransfer has been confronted with cases in which lessees have assumed that they would be able to purchase the leased car at the end of the contract. Confident that this was their right, they agreed high interest rates with a view to subsequently purchasing the leased car at the fixed residual value, which they then hoped would be lower than the vehicle’s market value on the second-hand market. Leasing customers saw the leasing contract as a kind of amortization contract, enabling them to pay the purchase price in monthly instalments before buying the car for the correspondingly reduced residual value at the end of the lease. In the cases handled by LeaseTransfer, however, the leasing contract with residual value did not include a purchase option. On the contrary, an unequivocal contractual provision required the lessees to return the leased car to the supplier at the end of the leasing contract. The leasing companies, on the other hand, were obliged, under separate contracts in which the lessees were not involved, to sell the vehicles back to the garage from which they had purchased them on behalf of the lessees, at the agreed residual value. Customers were therefore very disappointed, and LeaseTransfer had no difficulty in understanding why this situation, although contractually provided for, seemed unfair to them.
However, this is the prevailing model for residual value leasing of cars in Switzerland. The financial institution, or any other leasing financier, buys the car from the garage according to the lessee’s instructions and undertakes, as owner of the vehicle, to make it available to the lessee for use in accordance with the contractually agreed conditions. In return, the lessee is obliged to pay the leasing instalments and the agreed interest rates, and to return the leased vehicle to the supplying garage at the end of the leasing period. As a rule, the leasing company, which owns the vehicle, enters into a buy-back agreement with the garage, under which the latter undertakes to purchase the leased car at the end of the lease at the residual value specified in the contract. The garage can then decide whether or not to sell the leased car back to the lessee, and if so, set the new selling price. This is also how leasing with residual value is explained in the relevant documentation from consumer organizations. Corresponding information is also published in the general terms and conditions of each residual value leasing contract.
The customer argued that, in the provision of the leasing contract fixing the purchase price of the vehicle, the interest rates and the residual value at the end of the leasing period, the term “cash surrender value”, and not “residual value”, was used. As this term was different from that used in the general terms and conditions of the leasing contract, the lessee, acting in good faith, believed that a purchase option existed in his favor. According to the lessee, the fact that the buy-back value of the car was considerably lower than the value of the vehicle on the second-hand market at the end of the leasing contract also supported his argument. For LeaseTransfer, however, it was inappropriate to challenge the relatively detailed provisions of the leasing contract, which provided for the return of the car at the end of the lease and expressly excluded any purchase option.
Finally, the customer attempted to assert the existence of a purchase option by invoking the vehicle supplier’s statements, but there was nothing in the file to suggest that the seller had acted on behalf of the leasing company, the owner of the leased car. The leasing contract, drafted as a standard contract in accordance with standard practice, also expressly stipulated that any individual agreement to the contrary had to be in writing, as required by the Federal Consumer Credit Act.
In the end, LeaseTransfer was unable to identify any wrongdoing on the part of the leasing company. We therefore advised the lessee to contact the supplier garage directly, as it had obviously benefited economically from the situation, and to point out that a purchase option had been promised. The supplying garage obviously understood the lessee’s arguments, and thus enabled the lessee to become the owner of the car at the end of the lease by paying the residual value indicated in the leasing contract. The leasing garage even offered to finance the buy-back value of the car if the customer was unable to pay the residual value in cash at the end of the lease. The supplying garage was not obliged to accept the sale of the car at the end of the leasing contract. Being a salesman by profession, and in order not to let a dissatisfied customer go, he allowed the lessee to pay the buy-back value mentioned on his leasing contract, so that he could become the owner.
To avoid this inconvenience at the end of a residual value leasing contract, LeaseTransfer advises lessees to contact the leasing company three months before the end of the contract. Shortly before the end of the leasing contract, they can ask to purchase the leased car, paying the balance of the leasing contract at the time of request.
