Leased vehicles or machines may have defects that are visible already at the commencement of their use (e.g. paint damage, damaged machine components). Defects may also become apparent during the use of a vehicle or machine. Who is liable for the detected defects and which of them may constitute grounds for the lessee to assert rights under the statutory warranty? Who should report the defect? And most importantly – who is liable for defects in the leased item: the lessor or the seller of the vehicle or machine?
Leasing a vehicle or machine – who is liable for defects?
In a leasing agreement, three parties can be distinguished: the seller of the leased item, the financing party (the lessor), and the user (the lessee).
As a rule, liability for defects rests with the seller of the leased item.
The lessor is liable for defects only if he bears responsibility for them (e.g. if the item was damaged by the lessor or if the lessor concealed defects from the lessee). In practice, such cases are rare, as the lessor is merely the formal owner of the item, purchasing it for the benefit of the lessee who uses it. Therefore, the lessor has limited influence over the condition of the leased item and usually hands it over to the lessee immediately after acquisition.
To whom should defects in a leased vehicle or machine be reported?
Upon conclusion of the leasing agreement, the rights under the statutory warranty to which the lessor is entitled are transferred by law to the lessee, with the exception of the right to withdraw from the sales agreement with the seller.
Therefore, the lessee may pursue statutory warranty claims directly against the seller of the item, i.e. the entity from whom the lessor purchased the vehicle or machine. The lessee should report the defect to that seller and request its removal (e.g. repainting the vehicle), replacement of a defective component (e.g. a malfunctioning machine part), or a reduction in price.
The exception is the aforementioned right to withdraw from the sales agreement with the seller. The right to withdraw due to defects in the item is vested solely in the lessor, who may exercise it only upon the lessee’s request.
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Which defects may constitute grounds for the lessee to assert rights under the statutory warranty?
A defect in a vehicle or machine exists when the item does not conform to the agreement. Defects may be divided into physical defects and legal defects. In practice, leased vehicles and machines most often suffer from physical defects, i.e. deficiencies in their quality or usability.
Physical defects occur, for example, when a vehicle or machine does not start at all. They also occur when the software used in the vehicle or machine does not function properly, or when elements that should be present under the agreement are missing (e.g. the vehicle should be equipped with both front and rear cameras, but only a rear camera has been installed). A physical defect also exists if the vehicle or machine lacks the characteristics assured by the seller (e.g. it does not achieve the performance or speed represented by the seller).
Physical defects must exist at the moment the item is delivered by the seller to the lessor or must result from a cause inherent in the item at the time of delivery. Therefore, they cannot result from improper use of the vehicle or machine by the lessee. Importantly, in the case of a lease agreement, the relevant moment of delivery is not the date on which the item is handed over by the lessor to the lessee, but the date on which the item is delivered by the seller to the lessor.
Lessee’s obligations – reporting defects
Together with the statutory warranty rights, the lessee also assumes the obligation to carefully examine the item and to notify the seller of any defect without undue delay. It is therefore important not to postpone notifying the seller (by email or letter) of a defect in the leased vehicle or machine. It is advisable to do so immediately upon discovering the defect.
Failure to comply may result in the loss of statutory warranty rights. To meet the requirement of notification “without undue delay,” it is sufficient to send the notice of defect to the seller (e.g. by email).
Nowadays we can observe a general interest of entrepreneurs in leasing as a form of financing investments – such as e.g. a car. What is leasing? How is it different from a lease? What is a financial leasing and what is an operating leasing?
What are the consequences if the lessor (leasing company) terminates the leasing contract before the contract expires due to the lessee’s late payment of monthly installments? What happens to the car – does it remain at the lessee’s disposal? How can I defend myself against termination of the contract? Is it possible to renew the leasing contract?
In the event of a road collision which resulted in a damage on your car, the most obvious way to repair the damage is to seek compensation from an insurance company. There are two possible ways to deal with this issue: if the other driver was the perpetrator of the damage, you are entitled to seek compensation under vehicle liability insurance (“OC insurance”). However if you entered into an own-damage vehicle insurance agreement (“AC insurance”), you are entitled to seek compensation from the insurance company regardless of whose fault the collision was. What should you take into consideration when making a decision? What are the differences in settlements under both of the insurance types?
