A lease is a contract in which a merchant gives you the right to use his good or service in exchange for an amount of money. Essentially, you are agreeing to pay money for the right to use a thing, whether it is a car, washing machine, work of art, etc. You do not own the object – you are the lessee. The merchant retains ownership of the leased thing unless your contract includes an option to buy and you exercise this right by buying the object you rented.

A long-term lease is a lease which lasts for four months or more. Leases for less than four months can be considered long-term leases where a renewal clause extends the lease past four months.

No. Two types of long-term leases exist: 1) a conventional lease and 2) a lease with guaranteed residual value. The difference between these two types of contract arises when you return the good to the merchant.

• In a conventional lease, your only obligation is to return the property in good condition, taking normal wear and tear into consideration.
  
  Here’s an example: Let’s say you leased a party tent for your yard during the summer. Because you have a conventional lease, your sole obligation is to return the tent in good condition. If the sun faded the tent, you do not have to pay for repairs because the fading is considered normal wear and tear. The merchant cannot make you pay extra.
  
  
• In a lease with guaranteed residual value, you have two obligations when you return the object: 1) to return the object in good condition and 2) to pay the merchant the property's "residual value" if you are not buying it.
  
  Example: Leasing an automobile.

As a lessee, your main obligation is to make all the necessary payments, which usually include the following:

• the amount of your instalments;
  
• applicable taxes (GST and PST);
  
• maintenance and repair costs (unless the lease stipulates that the merchant will assume these costs);
  
• registration fees, if any;
  
• insurance premiums.

For most long-term leases, you will pay monthly instalments throughout the entire leasing period. By law, these instalments must be of equal amounts. The first and last instalments, however, may be less than the other instalments.

Instalments must be paid at regular intervals (for example, the 25th day of each month). Merchants cannot ask you to pay more than two instalments in advance. If you miss a payment, the law prohibits the merchant from seizing the good without first sending you a notice asking you to make your payment within thirty (30) days. You then have one month to remedy your default of payment. If you fail to honour your payment after the thirty (30) day limit expires, the merchant can then retake possession of the good.

If you have already paid at least half of what you owe under the contract, the merchant must seek permission from the court before seizing the property.

As a lessee, you are entitled to the same warranty respecting a good as if you were the owner.

Purchasing an extended warranty is useless if you will not be keeping the property after the leasing period is over. If the lease contract is not as long as the duration of the warranty, you’ll be paying extra for nothing! However, an extended warranty may be a good idea if you intend on buying the good when your lease expires and you want to be covered once the manufacturer’s warranty expires.

By law, the merchant is responsible for loss or deterioration of the leased goods if there is a fortuitous event, as long as it’s not your fault. A fortuitous event is something that is impossible to prevent, like a flood, fire or accident. It is in the interest of the lessee to also insure the good against other types of losses or damage.

If a loss for which the merchant is responsible occurs, you should claim the compensation amount from the merchant instead of your insurer. Of course, you should still notify your insurer of the event and its circumstances so that your premiums don’t go up!

When you insure a leased good, make sure to tell your insurer that you have a long-term lease. Also, provide the insurer with contact information for the actual owner of the thing. If disaster strikes, the compensation amount will be made payable jointly to you and the merchant who owns the leased object. The insurer’s cheque will be made out to both your names in such a way as to protect you as well as the merchant.

In some cases, the merchant may require you to insure the good. The merchant cannot, however, require you to purchase a specific insurance. You have the right, at all times, to choose your own insurer.

Yes. You can return the good to the merchant at any time during the lease period. However, since you are ending the contract before the end of its term, you will have to pay damages to the merchant.

The merchant may ask you to compensate him for any damages he suffered directly as a result of the cancellation of the contract. These damages correspond with the harm actually suffered as a result of the cancellation, and they do not include ancillary fees (such as insurance, storage costs, or legal fees).

In order to calculate the direct damages resulting from the cancellation of a long-term lease, you must first add all of the payments and the residual value indicated on the contract. From this sub-total, you must then subtract the amount of payments due at the date of cancellation, unearned credit charges, and the higher amount of the re-sale price or the residual value.

In addition to the payment of these fees, the merchant may have other recourses, for example if the consumer was negligent in using the good and damaged it.

Yes. However, if you’ve signed a contract for guaranteed residual value, there’s a small time frame for cancellation just after you sign the lease. You can, without penalty, cancel such a lease within two days of receiving your copy of the contract. When you do so, you must also return the good to the merchant within the two day delay. If the good is not in your possession, you must notify the merchant in writing of your intention to cancel the contract (also within two days). It is a good idea to send the notice by registered mail.

Yes. Before breaking a lease contract, you should know that there exist less costly alternatives:

• You can transfer the lease
  You can try to transfer your lease to another person. First, you must find a person who wants to lease the good. Then, you must provide the merchant with this person’s name and address as well as a written notice of your intention to transfer the lease.
  
  Upon receiving this notice, the merchant has fifteen (15) days to refuse or accept the transfer. If the merchant fails to respond in fifteen days, you can assume that he has accepted. A merchant who refuses a lease transfer must provide reasons for his refusal. You may contest these reasons in court.
  
  A transfer releases you from all your obligations, unless the original lease contract states that your responsibility continues in the case of transfer. Some merchants use such a clause to protect themselves in case the new person who assumes the lease cannot honour his payments.
  Clauses that prohibit the transfer of a lease are prohibited and of no effect.
  
  
• You can sublet the good
  As with a lease transfer, you must notify the merchant that you would like to sublet the good. The merchant then has fifteen (15) days to refuse the sublet.
  Be careful! You remain responsible for the lease if you sublet. Sometimes, the merchant may agree to release you from this responsibility.
  
  Clauses that prohibit the sublet of a lease are prohibited and of no effect.
  
  
• You can purchase the good (option to purchase)
  If your lease contract includes an option to purchase, you can buy the good and then sell it. This way, you can recuperate the full value of the good. Some long-term leases, however, do not include an option to purchase. That’s why it’s in your own best interest to request an option to purchase. It is not a commitment to buy, just an option to buy. In the end, it’s entirely up to you to decide whether to buy the good or not. Any contract that includes an option to purchase must indicate the purchase price or the manner of calculating that amount, and any other conditions for exercising the option.