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Automotive Legal Information - April 14, 2004


Fleeing, or is it Fleecing, the Lease Market:
Why are Car Leasing Entities Leaving the State of New York?

By E. L. Eversman, Esq.

If you have been following the news lately, or if you live in the State of New York, you might find yourself wondering what is going on in that State with vehicle leasing - or not leasing, as the case is more likely to be. Chrysler and Ford recently announced that they are pulling their private passenger leasing out of the State of New York and will not offer leasing arrangements to consumers who live there. Why? Because New York law holds the leasing company liable for any injury or damage caused by the car. Is that so different from other states, you might ask, and the answer is, "yes, very different".

New York's Motor Vehicle Civil Liability Law

New York's Vehicle And Traffic Law, Article 11, §388 holds lessors of motor vehicles civilly liable for injury or damage caused by use of the leased vehicle. This is a dramatic departure from traditional leasing law and, in fact, is diametrically opposed to leasing concepts at common law and echoes common law agency instead.

To be able to explain what is strange about New York's law, I have to explain two relationships which have existed for centuries in the common law. Those two relationships are the one between an agent and a principal (also known as the master/servant relationship) and the one between a lessor of property and the lessee.

Agent and principal (master and servant)

The relationship between a principal and an agent is fairly straightforward. Think of it in terms of employment. Your employer pays you money to do particular acts for it. You essentially have a contract with your employer in which you agree to trade your time and skills for money, and, either explicitly stated or implied, your employer has the right to set certain parameters around the job. Your employer also has the right to tell you things like, "don't sleep on the job, no personal calls on company time, and don't pick a fight while wearing a company uniform." And here is why many of those restrictions make sense.

Through a concept called vicarious liability, the law imposes risk on the employer for the acts of its employees in performance of their jobs. Let's say that I run the Eversman Delivery Company. One day, while out making a delivery, one of my drivers causes an accident and damages another car. Because the driver was acting on behalf of my company, my company can be held liable for the driver's negligence. The idea behind vicarious liability is that my company is benefiting from the acts of employees, I have the right to control what they can do and can't do on behalf of my company, and I am in the best position to be able to determine whether it is responsible to put a company truck into the hands of any particular employee. Therefore, because I have the right to control their actions and I am reaping the benefit of their work, I will have to bear the risk of something going wrong.

The leasing relationship

The relationship between a lessor (the owner of the property) and the lessee (the renter of the property) is entirely different than the one between agents and principals. When someone agrees to lease property, he or she is given (almost) exclusive control over the property. And, yes, while the lease terms govern things like whether the property can be used commercially or privately and for how long the lease runs, the point is that the property owner does not have the right to govern every single action you take with respect to the leased property.

In contrast to the agency relationship, the lessor has no right to control the actions of the lessee outside of the express provisions of the lease contract. One of the defining points of leasing is that the lessee obtains full and absolute control of the leased property (within the contract terms) and that the lessor has no right to interfere with the lessee's right of "quiet enjoyment" of the property.

New York's approach

New York's motor vehicle leasing statute holding the lessor liable for injury or damage turns the concept of leasing entirely on its head. In the leasing context, the vehicle owner has no power to control how the lessee drives or to whom the lessee may foolishly loan the car. Instead of traditional leasing principles, New York law holds lessors liable for acts of lessees and others, as if the lessees were their employees. Yet, without the ability to exercise control over every moment of use of the car, New York's statute puts lease companies in the position of reaping all of the liability and very little of the reward. To hold a lessor liable for the acts of the lessee, as New York does in the leased car context, is absolutely contrary to the entire concept of leasing. It would be like New York holding landlords liable for any crime or drug-related activity occurring in apartments they lease.

The end result

The unfortunate result of the statute is that many companies, including the major auto manufacturers, are deciding that the risk of leasing in New York is just not worth the money they make by leasing. The law hurts consumers because the flight of leasing companies from the New York market means they will simply have fewer choices. Without leasing as an option, consumers will need to change their habits because they may not have the finances to purchase the type of car they can afford by leasing. Leasing gave consumers more options. In New York, at least, consumers will have to learn to live without the flexibility their counterparts in other states enjoy.

E. L. Eversman

The information provided in this column is for information purposes only and should not be construed as legal advice. You should always consult an attorney licensed to practice in your Country, State, and/or Territory as laws vary from Country to Country, State to State, and Territory to Territory. The author is delighted to share information but cannot be responsible for damage or adversity encountered by reliance upon that information and urges you to consult with local counsel.

The above article is provided for the interest and entertainment of our visitors. The views expressed in this article are only those of the author, who is solely responsible for the content. AutoGuide.net does not endorse any of these views, and is not to be held responsible for any of the content provided in the above article.

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