The Pitfalls of Warranty Claims in Leasing Contracts

Car leasing is widespread in Switzerland. The typical form is so-called indirect leasing, which involves a three-party relationship: the customer (lessee) selects a vehicle from a seller (supplier) and negotiates a purchase price. The customer then applies to a leasing company (lessor) to purchase the vehicle on their behalf and make it available for their use. Accordingly, ownership of the leased asset remains with the lessor throughout the lease term. Upon expiration of the contract, the lessee must return the vehicle to the lessor.

There are therefore two contractual relationships: a sales contract between the lessor and the supplier, and a leasing contract between the lessor and the lessee. As a general rule, no contractual relationship exists between the lessee and the supplier.

However, a “leasing contract” is not a type of contract expressly regulated by statute. Its precise legal classification remains disputed. In practice, the specific terms of a lease are usually governed by general terms and conditions (GTCs). Particular issues arise in the area of warranty for defects, especially regarding the question against whom the lessee may assert claims.

Warranty for Defects under Sales Law

Under general sales law, the seller is liable to the buyer for warranted characteristics as well as for defects that eliminate or substantially reduce either the value of the purchased item or its fitness for the intended use (Art. 197 para. 1 CO). The buyer must inspect the item as soon as reasonably practicable in the ordinary course of business and must immediately notify the seller of any defects discovered (Art. 201 para. 1 CO).

Provided that the requirements for warranty liability are met, the buyer may generally seek rescission of the contract (Art. 205 et seq. CO) and thereby unwind the sale so that the parties are restored to their pre-contractual position. Alternatively, the buyer may request a reduction of the purchase price (Art. 205 CO) and claim compensation for the diminished value of the goods. In the case of a sale of generic goods—which is generally not the case in leasing transactions—the buyer may also demand substitute performance (Art. 206 CO). Swiss sales law does not provide for an explicit right to rectification; however, such a right is frequently agreed upon contractually in leasing arrangements, often to the exclusion of the other warranty remedies.

Warranty Claims Against the Supplier

As the supplier and the lessee are generally not in a contractual relationship, the question arises whether the lessee may nevertheless assert warranty claims for defects directly against the supplier.

Since the lessor is the owner of the vehicle, warranty claims against the supplier are, in principle, vested in the lessor. In practice, however, such warranty claims are frequently assigned to the lessee pursuant to Art. 164 CO. This is intended to enable the lessee, in the event of a defect, to assert the relevant claims directly against the seller. The permissibility of such an assignment is, however, disputed. According to the case law of the Swiss Federal Supreme Court, the rights of rescission and reduction of the purchase price, being rights that alter a legal relationship by unilateral declaration, are not assignable (BGE 114 II 239, consid. 5c/aa).

For this reason, some leasing companies rely on alternative legal mechanisms to enable the lessee to proceed directly against the supplier. One such mechanism is the agency arrangement (Ermächtigungskonstruktion). Under this approach, the lessee is granted authority through a power of attorney contained in the general terms and conditions, allowing the lessee to assert warranty rights for defects against the supplier as the direct representative of the lessor (Art. 32 para. 1 CO). Alternatively, the lessor and the supplier may conclude a contract conferring rights on the lessee (Art. 112 CO). This enables the lessee to assert the warranty rights independently.

Warranty Claims Against the Lessor

A further question is whether the lessee may assert warranty claims directly against the lessor. In practice, the lessor generally confines its role to that of a financier and seeks to exclude liability through disclaimer clauses or by assigning the claims to the lessee (see above).

Nevertheless, it is not excluded that the lessor may be liable for defects in the vehicle, at least to the extent that it has warranty claims against the supplier. This is particularly the case where the connected lender liability (Einwendungsdurchgriff) pursuant to Art. 21 para. 1 CCA (Consumer Credit Act) applies. Leasing agreements are also regarded as consumer credit agreements where they provide that the agreed lease payments increase if the lease agreement is terminated prematurely (Art. 1 para. 2 CCA). In order for the lessee to assert against the lessor all rights that would otherwise be available against the supplier, the lessee must, in particular, have unsuccessfully pursued those rights against the supplier beforehand (Art. 21 para. 1 lit. d CCA). Furthermore, the amount of the transaction in question must exceed CHF 500 (Art. 21 para. 1 lit. e CCA).