California Laws for Leasing a Motor Vehicle

Each state can pass vehicle consumer protection laws to help consumers guard against deceptive and unfair commercial practices. In addition to the Federal Trade Commission’s consumer protection laws, a state’s consumer protection agencies and attorney general serve this purpose. In California, the state attorney general and the Department of Motor Vehicles regulates the state’s vehicle lease transactions.

Section 2987 of the California Civil Code is the Moscone Vehicle Leasing Act. The act governs transactions between vehicle lessors and lessees. Under the California Code, vehicle lessees have a legal right to terminate their vehicle lease agreements before the scheduled date of expiration. However, lessees can charge them reasonable fees for early termination of their vehicle leases.

For early termination, a vehicle lessor cannot charge a lessee more than the amount of lease payments paid before termination plus any wear and tear damages, reconditioning fees and disposition fees. The lessor’s legal right to assess early termination charges must be set forth in its lease agreement and itemize the allowable fees. Vehicle lessors are legally obligated to act in a commercially reasonable manner and in good faith. Additionally, leases in California allowing lessees the option to purchase at a later date are subject to different rules, but require lessors to act in a commercially reasonable manner.

In addition to the Moscone Vehicle Leasing Act governing the financial implications of vehicle leases, the California Song-Beverly Consumer Warranty Act covers the commercial condition of leased vehicles. Under the California Song-Beverly Consumer Warranty Act, also known as the California Lemon Law, vehicle buyers and lessees have legal rights against lessors or automotive dealers who sell them defective cars. Both lessees and vehicle owners have a right to receive a replacement vehicle or refund if their cars are defective “lemons.” To pursue lemon law recourse, a consumer must have leased or purchased a new car from a licensed California dealership or leasing company. Furthermore, she must provide the leasing company or dealership a reasonable number of attempts to fix the defect.

A consumer who leases a lemon from a leasing company or dealership has the right to demand a refund and terminate her lease without penalty. A consumer may also demand a replacement vehicle, at his sole option. Regardless of the option a consumer chooses, the seller or lessor is responsible for paying incidental towing charges, finance charges, rental car fees and taxes. However, California law allows lessors to charge lessees a reasonable use fee limited to a fraction of the lease or purchase price.

Since state laws can frequently change, do not use this information as a substitute for legal advice. Seek advice through an attorney licensed to practice law in your state.