What is Lemon Law?
Lemon laws are statutes that provide remedies to consumers of defective products, particularly motor vehicles, and are designed to protect purchasers and lessees from vehicles that fail to perform up to consumer expectations. For vehicles, the lemon laws place an obligation on manufacturers to take back consumers’ lemon vehicles that fail to meet certain standards after a reasonable number of repair attempts.
There are federal and state lemon laws. The federal lemon law, the Magnuson-Moss Warranty Act , requires the manufacturer to make certain disclosures in its warranty and also provides remedies for breach of warranty against the manufacturer. In addition, the federal statute allows the consumer to recover attorneys’ fees and costs of the lawsuit against the manufacturer. The states have adopted their own lemon laws that vary in scope, but generally, lemon laws can be found in states’ codes at their vehicular or consumer affairs sections. Most state lemon laws also allow claimants to go around manufacturers and pursue the remedy directly with the dealer and/or manufacturer.
Can I Use Lemon Law for a Leased Car?
Lemon law rights can be applied to leased vehicles under certain circumstances. In most states, lemon law coverage is triggered when a car is "out of service" for repairs within the lemon law time frames-normally the first 12,000 miles or 12 months (some states have an 18 month mileage threshold and one state has a 15 month) after delivery. However, most if not all states will allow the first 12 months (and in another state 15 months) of lease payments to count towards meeting the requirements of the lemon law.
Here’s an example of how this works: The customer purchases a new Acura for $29,000. The customer puts down a $7,000 deposit and leases the vehicle for 36 months with the monthly payments of $660. One year later…the internet starts buzzing that a potential oil consumption issue has surfaced (See here: http://tiny.cc/7x1wz). The customer stops at a Honda dealer to have the oil consumption tested and they verify that the engine is using more oil than what is normal. The customer starts taking the vehicle back to the same dealer to have the engine checked periodically. During month 12, the customer takes the vehicle back to the dealer. At this time the dealer checks the oil level and finds that it is too low. The customer continues to take the vehicle in for checks of the engine, and around month 18, the dealer tells the you that there is nothing they can do to fix the issue. You stop paying the lease according to state law, and at month 22, the dealer attempts to repossess the leased vehicle. You refuse to surrender the car because the dealer has failed to fix the oil consumption issue. The customer has the right to pursue lemon law remedies. At 36 months, or the end of the lease, the lawyer can require the client to surrender the unfixable car to the dealer. The best way to settle these cases is to have the manufacturer waive any lease end or excess wear penalties.
What to Do if Your Car Lease is a Lemon
In Pennsylvania, an individual who leases a vehicle may be eligible to file a Lemon Law claim, provided the vehicle was defective at the time of lease. The Pennsylvania Lemon Law requires that if any nonconformity occurs during the first twelve months or 12,000 miles of the lease, whichever comes first, and the manufacturer (or authorized repair facility) fails to make the necessary repair attempts during the warranty period, a Lemon Law remedy may be available. The consumer must give the leasing company a chance to repair the defect through a reasonable number of visits before bringing a Lemon Law claim. The Lemon Law allows a maximum of three repair notices within the warranty period. If no nonconformity is discovered, the consumer is required to provide the leasing company notice or pick-up, but only one time. The notice is just two pages in length and advises the manufacturer that you have given the opportunity to repair your vehicle on three separate occasions. You also provide a date when the car will be picked-up for a fourth time. At the point the dealership picks up your unclamped, the Lemon Law is triggered. The next steps happen pretty rapidly thereafter. The fourth opportunity to repair is initiated when the consumer provides a pick-up or second repair notice to the leasing company. At that point, the clock begins ticking and the manufacturer has 30 days to repair the car. If the vehicle is repaired (and is free of defective), the matter ends. However, if the consumer brings the car back and it is again defective, a Lemon Law case is triggered. It is important to note that pick-up, or second repair notice must be sent via certified delivery. Failure to do so will result in a loss of a viable claim. If the vehicle is picked up for a fourth time, the manufacturer or authorized repair facility has a maximum of 30 days to repair the defect. If the vehicle is returned to the consumer and it is discovered that the consumer’s car remains defective, it is then necessary to "affirmatively elect" a Lemon Law remedy, which can be done in writing, through a telephone call or by simply going to the dealership in person. If you call the dealer, you must affirmatively state your intent to file a Lemon Law claim. However, if you are electing to file a claim by visiting the dealership, you should make your statement to the manager. As soon as the Lemon Law remedy is elected, the clock begins to run. Once the Lemon Law remedy is elected, the manufacturer or vehicle leasing company has 10 additional days to repair the defect and return the car to the consumer. The manufacturer must refund the consumer on the following basis: The consumer is also entitled to a full refund on all security deposits that have been placed into escrow. If the manufacturer is unsuccessful in returning the vehicle to a conforming condition and crediting the consumer’s escrow deposit, a Lemon Law claim is initiated. The manufacturer is then obliged to refund the consumer on the above-mentioned basis, replace the vehicle with a comparable model and give the consumer the opportunity to select the payment option. If the consumer chooses to accept a refund, the manufacturer may either return the funds directly to the consumer or subsidize the loan on the vehicle. In the event the consumer elects to replace the vehicle, he or she will be eligible for either a refund or a replacement vehicle that is comparable in year, make and model. The consumer must be able to satisfy the gap between the loan or financing amount to take advantage of a replacement remedy. If the vehicle was financed at the dealership, this would not be an issue. However, if the consumer secured outside financing, he or she might have to pay-up prior to settlement. As an alternative to a settlement refund, the consumer may opt to receive the money from the manufacturer and pay-off the loan or lease directly. That being said, however, to do so will create the same issue, as the consumer will not be credited should his or her loan or lease have a shortfall. With a refund, the consumer is entitled to a refund on all down payments made directly to the dealer or manufacturer. The same standards apply to trade-in and security deposits. In most circumstances only the leasing company will hold an escrow deposit. The manufacturer is also required to pay a pro rata refund of all monthly payments made during the warranty period. This is calculated by dividing the number of months the consumer had possession of the vehicle (less any month or partial month that was nonconforming) into the total amount of the payment. The consumer is entitled to this amount, even if payments were made after electing a Lemon Law remedy.
Lemon Law and Legal Remedies
The primary legal options available to consumers under California’s lemon law are replacement of the defective vehicle with a new one, refund of all money spent on the vehicle, and refund of all money spent on the vehicle plus cancelation of the lease, if the consumer has leased the vehicle. Consumers without an attorney cannot elect one of these remedies. Specifically, the consumer must elect for the manufacture to buy back the car instead of replacing or refunding when the manufacturer presents these three options. Consumers with an attorney can select "repair" because the law states that the manufacturer must be given an opportunity to repair its product whenever it is given an opportunity to provide a remedy.
Arbitration is available to settle lemon law disputes about leased or purchased vehicles. Most leases and many purchases have provisions requiring binding arbitration through the Lemon Law Arbitration Certification Program. A consumer can win the arbitration, however, if they do not have an attorney and they do not choose a remedy, and then if the manufacturer chooses the "repair" remedy rather than the "replacement" or "refund" remedy, then the consumer may not obtain their money back or a new vehicle . Cases involving lemons, the official term for which is "nonconforming goods," that were not properly repaired in arbitration can be taken to court. If the manufacturer does not comply with a non-binding arbitration award within thirty days of the award, the consumer can file suit for an order making the manufacturer comply with the award. This order will be considered an injunction, which is a remedy to which an injured party is entitled.
If the consumer has an attorney during a lemon law dispute, they can elect between the three remedies described above. If the consumer selects "refund" when the manufacturer offers buy back of the vehicle, the consumer will still entitled to "repair" to the extent that laws even requiring lessors to provide a replacement or refund can avoid liability under the law.
Consumers who have gone through an arbitration and are still not satisfied can file an action in Orange County Superior Court for money damages in the amount of the difference between the fair market value of the car as of the date of the first attempted repair, plus incidental damages, minus the value of the consumer’s use of the vehicle up to the date of trial. Consumers can also recover damages for emotional and other injuries arising from manufacturer’s misrepresentations and/or deceptive trade practices.
Variations in State Lemon Laws Covering Leases
Lemon laws can vary state by state. And that is especially true for leased vehicles. Most lemon laws apply to owned vehicles, which is somewhat understandable considering a leased vehicle is a vehicle that you don’t truly own. In a lease, you make monthly payments for a certain amount of time in exchange for use of the vehicle. But that doesn’t mean that lemon laws shouldn’t also provide some protection for leased vehicles. And they do in many states. Some will require manufacturers to buy back leased vehicles if they are defective. Other states will simply require reimbursement of certain payments toward the lease. In both cases, however, defense attorneys will argue that your lemon law claim should be limited to only part of the lease and that other car problems might not have anything to do with the defect. For example, if you had to pay $500 in repair bills and you owe $2,300 because the car was in the shop, they will argue that you should only get $500 from the manufacturer. And they will argue that the other $1,800 should come out of your pocket because it wasn’t the defect that kept the car in the shop for so long. So the protection is not absolute. Some states do grant leased vehicles full protection, but in most states, defense attorneys will argue that the manufacturer should never have to pay more than its own fault in the repair of a defect.
Torres v. Chrysler Financial Services – Illinois The plaintiff, Torres, filed a lawsuit against Chrysler asking them to repurchase his lease of a Dodge Stratus. Torres had stopped making payments on his lease because he was unhappy with consumer complaints he had sent to Chrysler about the vehicle. He eventually sued claiming the vehicle was defective and he was entitled to a refund under Illinois law. The trial court dismissed the suit and ended Torres’ claim to a refund. The court held that Illinois law only covered the refund of a vehicle, not a refund of entire lease payments. Torres appealed and the court of appeals sided with the plaintiff. The court noted that while the language of the Illinois lemon law protects both a person who leases and a person who buys, only 2 of the 3 sections of the Lemon Law addressed refunds. The Court considered the lease payments to be partial to a refund of the entire vehicle. The court also considered the idea that allowing a consumer to lease a vehicle and pay for the use of the vehicle while it is in the shop as a burden to the consumers.
Schillaci v. American Honda Finance Corporation – New York New York has an excellent leasing statute which provides the benefit of fully protecting the consumer during the lease term. The statute states that, "If the manufactured motor vehicle is leased as part of a contract, as defined in section two hundred eighty-one of the personal property law, the provisions of this article shall be enforceable by the lessor, or both the lessor and the consumer as the joint interests of either demanded by them." In Schillaci v. American Honda Finance Corporation, the plaintiff was granted this incredible protection when American Honda failed to properly install his front windshield after a manufacturer recall, causing water to leak into the engine compartments while driving. The trial court held that the plaintiff was entitled to a replacement vehicle because the windshield was defective within the first two years of the lease. The trial court also held that even though New York law is written to give the consumer and not the leasing company full rights under the statute, the leasing company could seek reimbursement from the manufacturer for any amounts paid to the consumer. The appellate court upheld the decision of the trial court and awarded the plaintiff a new vehicle instead of a refund of the lease payments.
However, other states are not as favorable toward lessees. Nevada Lemon Laws Nevada’s lemon law only applies to vehicles purchased, not leased. It states that the manufacturer must repurchase the vehicle provided it is used primarily for personal, family or household purposes. And it defines the term "consumer" as including the buyer and any person using the vehicle during the one-year warranty period. However, the clause "primarily for personal, family or household purposes" excludes leases and commercial use. Connecticut Lemon Laws Connecticut limits the consumer to "the individual purchasing a new motor vehicle under a written warranty." Connecticut isn’t slightly more lenient than Nevada as it does allow for a person other than the named buyer to file a lemon law claim, but it still applies only to purchased vehicles. States are continually reevaluating their laws and amending them to better serve consumers. If you have a leased vehicle that is defective, be sure to check your state’s lemon law. Some states will allow you to file a lemon law claim and some may offer a satisfactory outcome to your claim that you hadn’t previously known about.
Lemon Law FAQ
The following are some frequently asked questions regarding lemon law for leased vehicles:
I leased my vehicle. Does the lemon law apply to me?
Yes. The same consumer protections that exist for the purchase vehicle also apply to leased vehicles. However, leasing your vehicle does not impact the process in any way.
How long will it be before my case is decided?
A limitation exists in the lemon law controversy regarding the amount of time that the manufacturer or its authorized repair facilities have to fix the defects in your vehicle. The amount of time required to fix your leased vehicle may get credit towards the amount of time that the manufacturer has to fix the problems. Depending on the nature of the problems , this may shorten the time in which your case is decided.
Some consumers have hired counsel and commenced a lemon law case immediately upon delivering their vehicle to an authorized facility. Some then dismiss their lemon law lawsuit against their dealer and manufacturer when the vehicle is repaired.
If your dealer attempts to charge you fees for the mechanics labor to install parts under warranty, your dealer has violated the lemon law and you should consult counsel immediately.
If the dealership has the parts to fix your vehicle in stock at the time you deliver it, your dealer should fix the vehicle in one day unless external circumstances cause a delay in the repair.
You have the right to have the problem plainly and clearly explained for you by your dealer. If you believe the dealer is giving incomplete or contradictory information, consult counsel immediately.
Your authorized facility should contact your lessor to inform them of the pending litigation. If your lessor is not helpful, consult counsel immediately.