Private car leasing: rights and duties under the law

Service page: Class actions and consumer claims lawyer.

This guide deals with private leasing: a car that a person rents for their personal or family use for a fixed term against a monthly payment. It explains what the law says about the contract, early exit, faults during the term, returning the car and traffic tickets. On buying a defective new car, see A defective new car and the “Lemon Law”.

What leasing is in legal terms

Rental is a right, granted for consideration, to hold property and use it, not in perpetuity (section 1 of the Rental and Loan Law, 5731-1971), and the Law also applies to the rental of movable property, such as a car (section 2(a)). The provisions of the chapter on rental apply when another law has no special provisions and when no other intention can be inferred from the agreement (section 2(c)). So the starting point is the contract.

The Consumer Protection Law, 5741-1981 applies when the customer is a “consumer”, meaning someone who buys an asset or receives a service from a dealer (the business) for a use that is mainly personal, domestic or family, and a “sale” under the Law includes renting out (section 1). A car rented for a use that is mainly business does not fall within the definition.

A contract whose terms, all or some of them, were set in advance by one party to be used for many contracts is a “standard-form contract” (section 2 of the Standard Contracts Law, 5743-1982). In a proceeding between the supplier and the customer, the court cancels or changes an unfair (oppressive) term in such a contract, taking into account all the terms of the contract and the circumstances (sections 3 and 19). The Law lists terms that are presumed to be unfair (section 4), and some of them appear below.

Before signing: what must be clear

A dealer may not do anything that is likely to mislead a consumer about a material matter in the transaction. Among the material matters the Law lists: the regular or customary price, including the credit terms; the maintenance service and its terms; the warranty terms for the asset; and the terms for canceling the transaction (section 2(a)(13), (16), (17) and (21) of the Consumer Protection Law). The prohibition also applies to advertising (section 2(c)).

If the leasing transaction is a “continuing transaction”, meaning a transaction for buying goods or services on a continuing basis (section 13C(a)), the dealer must disclose to the consumer orally, before the contract is made, their right to cancel the transaction; in a transaction for a fixed term, the length of the transaction and its end date; and the payments they must make because of the cancellation, if any, and how they are calculated, as far as this has been set. In a written contract, these details must appear next to each other, with special prominence and in clear and legible letters (section 13C(b) and (c)).

Early exit from the contract

As a rule, the contract sets whether the leasing can be ended before the end of the term and against what payment. The right under the Consumer Protection Law to cancel a fixed-term transaction at any time, in the manner and on the terms in the Fourth Schedule, applies only to the types of transaction listed in the Schedule (section 13A1), and the Schedule covers only buying a vacation unit and services at a fitness center.

When the payment is liquidated damages for breach of the contract, it is payable without proof of damage, but the court may reduce it if it finds that it was set without any reasonable relation to the damage that could have been foreseen, when the contract was made, as a probable result of the breach (section 15(a) of the Contracts (Remedies for Breach of Contract) Law, 5731-1970). In a standard-form contract, a term setting unreasonable liquidated damages in the supplier’s favor is presumed to be unfair (section 4(6a) of the Standard Contracts Law).

Extra kilometers and price changes

The kilometer limit and the price for each extra kilometer are set in the contract. The Standard Contracts Law does not apply to a term setting the monetary consideration the customer pays for the subject of the transaction, provided that it is worded in plain and clear language (section 23(1)). On the other hand, these are presumed to be unfair: a term giving the supplier the right to set or change, at its sole discretion, after the contract is made, the price or other material obligations of the customer, unless the change results from factors beyond the supplier’s control (section 4(4)); and an indexation term under which a fall in the index will not benefit the customer (section 4(11)).

A fault in the car during the term

The lessor must deliver the leased property in conformity with what was agreed (section 6(a) of the Rental and Loan Law). Within a reasonable time after receiving a demand from the lessee, it must repair anything that causes real interference with ordinary use, except a defect for which the lessee is responsible under the Bailees Law or whose repair is not the lessor’s responsibility under the agreement or under common practice (section 7(a)). For movable property, the lessor may meet this duty by replacing the property with other property, if this is reasonable, and the lessee may demand a replacement when the repair involves unreasonable interference with use (section 7(b) and (c)).

If the defect was not repaired within a reasonable time of the demand, the lessee may repair it and demand repayment of their reasonable expenses, or reduce the rent for as long as the defect has not been repaired, in proportion to the fall in the rental value (section 9(a)). A lessee who wants to make the repair themselves must notify the lessor a reasonable time in advance (section 9(b)). A term exempting the lessor from liability for a defect is void if the lessor knew or should have known of it when the contract was made or at the time of delivery and did not tell the lessee (section 8).

Here too, the contract can set a different arrangement (section 2(c)). In a standard-form contract, a term exempting the supplier, fully or partly, from liability that it would bear under law is presumed to be unfair (section 4(1) of the Standard Contracts Law).

Returning the car: wear, damage and who has to prove what

For the purposes of the Bailees Law, 5727-1967, a lessee is a paid bailee for whom the purpose of keeping the property is secondary to the main purpose of holding it (section 24 of the Rental and Loan Law). Such a bailee is exempt from liability for the loss of or damage to the property if it was not caused by their negligence (section 2(b) of the Bailees Law). A bailee is also not liable for damage caused by ordinary use of the property in line with the terms of the bailment, by natural wear and tear, or by a defect that the property had at the start of the bailment, but liability for negligence remains (section 4).

These are provisions that apply when no other intention appears from the agreement (section 14 of the Bailees Law), so it is important to read what the contract says about the condition of the car at return. In a standard-form contract, a term placing the burden of proof on the customer, when without it the burden would not be on them, is presumed to be unfair (section 4(7) of the Standard Contracts Law).

Traffic and parking tickets

Under the Traffic Ordinance [New Version], 5721-1961 (פקודת התעבורה [נוסח חדש]), for a vehicle that is subject to a rental agreement, the vehicle’s “owner” also includes the person who holds it under the agreement (section 1). When a traffic offense or a traffic violation was committed in the vehicle, the owner is treated as if they were driving it, unless they prove who was driving or to whom they gave possession of the vehicle; if they prove to whom they gave possession, the presumption applies to the holder (section 27B(a) and (b)).

A dispute with the leasing company: the steps in order

1. Documentation: keep the contract, the delivery report, photos of the car at delivery and at return, and all the correspondence.
2. A written demand: a fault? Demand in writing that it be repaired. The lessor must repair it within a reasonable time after receiving a demand (section 7(a) of the Rental and Loan Law). A charge you dispute? Set out in writing what you dispute and what you rely on.
3. A complaint: you can file a complaint with the Consumer Protection and Fair Trade Authority.
4. A claim: an individual can sue in the Small Claims Court for an amount of money up to the ceiling in section 60 of the Courts Law [Consolidated Version], 5744-1984, which the Minister of Justice may change. Representation by a lawyer there is allowed only with the court’s permission and for special reasons (section 63). A claim above the ceiling is filed with the Magistrates’ Court, as long as its amount does not exceed the amount in section 51(a)(2).

When the same term or the same charge recurs against many customers, you can consider a motion to certify a class action against a dealer (item 1 of the Second Schedule to the Class Actions Law, 5766-2006, and section 3(b) of the Law). An application to the Standard Contracts Tribunal to cancel or change an unfair term may be filed by the Attorney General, the Commissioner for Consumer Protection and Fair Trade, customer organizations and public authorities set in regulations, and a customer organization that the Minister of Justice has approved for a particular matter (section 16(a) of the Standard Contracts Law). An individual customer raises the argument in their own proceeding against the supplier (section 19).

If approaching the company did not help, you can read about a consumer claim, personal or class, on the page Class actions and consumer claims.

Frequently asked questions

Can you return a leased car before the end of the term?

As a rule, it depends on the contract, which sets whether the leasing can be ended early and against what payment. The right under the Consumer Protection Law to cancel a fixed-term transaction at any time, on the terms in the Fourth Schedule (section 13A1), applies only to vacation units and fitness centers. If the payment is liquidated damages for a breach, the court may reduce it when it was set without any reasonable relation to the damage that could have been foreseen (section 15(a) of the Contracts (Remedies for Breach of Contract) Law).

Can the leasing company charge me for scratches and wear?

For the purposes of the Bailees Law, a lessee is a paid bailee for whom the purpose of keeping the property is secondary to the main purpose of holding it (section 24 of the Rental and Loan Law), and such a bailee is exempt from liability for damage not caused by their negligence (section 2(b) of the Bailees Law). A bailee is also not liable for damage caused by ordinary use in line with the terms of the bailment, by natural wear and tear, or by a defect the property had at the start of the bailment (section 4). These provisions apply when no other intention appears from the agreement (section 14), so you also need to check the contract.

Who pays a traffic ticket on a leased car?

Under the Traffic Ordinance, for a vehicle that is subject to a rental agreement, the vehicle’s “owner” also includes the person who holds it under the agreement (section 1). When a traffic offense was committed in the vehicle, the owner is treated as if they were driving it, unless they prove who was driving or to whom they gave possession of the vehicle, and then the presumption applies to the holder (section 27B).

What happens at the end of the leasing period?

When the rental period ends, the lessee returns the car to the lessor at the place where it was delivered to them (section 20(a) and (c) of the Rental and Loan Law), unless the contract provides otherwise (section 2(c)). If the parties continued the rental after the end of the term without setting a new term, each party may end it by notice a reasonable time in advance (section 19(a)). When the customer is a consumer and the transaction is for a fixed term, a term under which the engagement continues automatically after the end date has no effect, and when payment is collected by a debit authorization, the dealer must give advance notice of the end date (section 13A(b) and (c)(1) of the Consumer Protection Law). The Law gives no right to buy the car at the end of the term; such an option, if there is one, is set in the contract.