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I am in the market for a new (new for me but I'm happy with used) car and my brother's father-in-law is coming up on the end of a three-year lease on a 2011 model. Can you tell me the pros and cons of buying out a lease belonging to someone else. A couple other facts to help:

  • I am not concerned with the actual car – there have been no accidents or other repairs. I’m more concerned whether it’s better to go through the dealer or should he pay and then I pay him cash.
  • The lease comes due in December but I could take it off his hands earlier if that makes things easier. Would it be okay to pay a month of the lease?
  • I will be paying cash for the vehicle – either to him or to the dealer, so I’m not concerned with financing. I am not sure if this plays any part in the decision but of course I am looking to find the most economic way of transferring the car.
  • I am interested in an extended warranty from the manufacturer. I would also be happy to buy a warranty after the fact, if that is an option – hopefully a two-three year warranty. There is still a year left on the original four-year warranty. – Ryan in Toronto

To recap: you're wondering how to go about purchasing the vehicle that an extended family member has been leasing when that lease ends next month. You'll be paying cash, and want the best deal. So, what are your options?

"Basically, the customer has first right to purchase the vehicle at the buyout or residual value which is typically a wholesale value," says Erich Schmidt, managing director of AutoOne Sales and Leasing in Vancouver. "Most dealers love to keep their lease returns as they can remarket them and sell at a retail price to make some money. If the lessee doesn't want the vehicle but their relative is interested, in most cases, the lessee would have to pay the buyout plus taxes and then sell it to their relative.

"The problem with this is that the lessee will be out the taxes, as they can't charge or collect those from the relative," Schmidt says. "When the relative goes to insure the car, they will have to pay taxes on their purchase price from the lessee so essentially taxes are paid twice."

Some dealers, however, may be willing to conduct the buyout sale directly to you, saving the lessee from paying taxes. Each dealer and manufacturer handles lease returns differently, so this really depends on the dealer and the relationship.

Most dealers sell aftermarket warranties, so a range should be available, from a one-year powertrain to a four-year bumper-to-bumper. In fact, this may be a card that can be played to convince the dealer to sell the vehicle directly to you at lease end, as they will benefit by selling you a warranty on the car and making a little money.

Taking over the lease, rather than purchasing the vehicle from your brother's father-in-law after his buyout, is another scenario that would make things easier in light of the tax issue mentioned above. It would, however, require a lease transfer, which entails a credit application and approval, and for which the dealer may charge a fee. According to Mississauga-based Leasebusters, the average lease transfer fee is $450. Assuming the transfer goes smoothly, you would become the lessee and could choose to buyout the lease direct from the dealer at the lease end.

Again, each dealer and manufacturer handles lease returns differently. It's worth exploring whether these options are available, to keep your in-laws happy and help you get the best deal.

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