Car Leasing Dilemmas: When Accidents Happen, Even If You’re Not at Fault

When it comes to car leasing, even if you’re not at fault in an accident, you can still face significant challenges. For instance, a car lessee who is involved in an accident—regardless of fault—may still be required to pay three months of rent for a vehicle they can no longer use. Additionally, they are responsible for covering the depreciation in the car’s value, which is the difference between its residual book value and the selling price.

Let’s explore the challenges of leasing by examining real-life situations as examples. We’d like to remind you that you can reach out to the specialists at 360WEDO for personalized consultations on legal issues, court representation, drafting legal documents, contract analysis, labor disputes, and much more.

Legal Action in Leasing: A Case Study of Unpaid Rent and Damages

In one case, a leasing company took legal action against a client company (the lessee) for a total claim of CZK 225,351.

The claim primarily consisted of three unpaid rent payments for December 2020, January 2021, and February 2021, each amounting to CZK 16,883, totaling CZK 50,650. Furthermore, the leasing company sought reimbursement for costs related to towing the vehicle, which amounted to CZK 6,050. They also claimed the depreciation in the vehicle’s value at the time of sale, which was CZK 168,651.

Obligation to Pay Car Lease Even If the Vehicle Is Damaged in an Accident

The company entered into a lease agreement for a Hyundai Tucson III 2.0. According to this agreement, the lessee is required to pay the lease installments in full and on time, even if the leased vehicle becomes unsuitable for use or operation.

This includes situations where the car is damaged due to an accident or defect, or if it is sent for repairs, or even if it is destroyed.

What Is the Penalty for a 15-Day Delay in Lease Payments?

If a tenant is more than 15 days late in making lease payments or other required payments, including contractual penalties, the landlord has the right to reclaim the leased item without terminating the contract. This provision was mutually agreed upon by both parties.

Additionally, the landlord can authorize a third party, such as a collection agency, to retrieve the vehicle and collect any outstanding amounts. In this case, the leasing company exercised these rights, which the tenant company contested.

On October 30, 2020, the car was involved in a traffic accident caused by a third party. The tenant company failed to pay the lease for December 2020, January 2021, and February 2021, leading the leasing company to issue an invoice for these amounts.

After repairs were completed, the car was transported from the service center to the leasing company’s office.

The court of first instance ruled in favor of the leasing company, granting their claim for payment of all specified amounts. This decision was upheld by the appellate court, resulting in a successful outcome for the leasing company in the lower courts.

The case was subsequently heard by the Supreme Court of the Czech Republic.

Type and Nature of the Leasing Agreement

In its decision (case No. 26 Cdo 1067/2024, dated August 28, 2024), the Supreme Court of the Czech Republic found that the companies involved designated their agreement as a movable property lease. They clearly stated the purpose of the agreement: to provide the lessee with limited use of a specific movable item—the leased item—for a fee.

The court deemed this designation appropriate, as allowing temporary use of an item for a fee is a fundamental characteristic of a lease agreement, as outlined in § 2201 of the law.

The lessor (the leasing company) is classified as an entrepreneur under § 420 et seq. of the Civil Code, and the leased item is a movable asset, specifically a vehicle. Therefore, the contract also fulfills the criteria for a commercial lease of movable property under § 2316 and for vehicle leasing under § 2321 of the Civil Code.

In addition to outlining how the lessee can use the leased item, the contract includes other provisions related to vehicle insurance, road tax, radio fees, service costs, tire changes, and more. These provisions are typically not tied to a specific term. In practice, agreements of this nature are commonly referred to as operating leases. 

Why the Leasing Company Won in Court

The primary purpose of a leasing agreement is to provide the lessee with the use of a vehicle for a fee. However, this doesn’t mean that the agreement can’t include terms that impose obligations on only one party.

In typical lease agreements, if the lessee is unable to use the vehicle properly, they are entitled to a reasonable discount on the rent. If they cannot use it at all, they have the right to refuse it (see § 2208 and § 2318 of the Civil Code). That said, it is possible for parties to agree on lease terms that differ from the standard provisions in the Civil Code. This means that other regulations regarding the rights and obligations of both parties—including the lessor’s liability for any issues with the leased item—can also apply.

Strict Conditions of Operating Lease

In its ruling (case no. 26 Cdo 1067/2024, dated August 28, 2024), the Supreme Court of the Czech Republic pointed out that operating leases often provide significant benefits to the lessee. When signing the contract, the lessee can use a vehicle worth several hundred thousand crowns without having to come up with the large sum needed to buy it outright. There’s no down payment required, and the lessee avoids the hassle of dealing with the paperwork involved in purchasing, registering, or eventually selling or disposing of the vehicle. Instead, they simply get to use the vehicle for a set period.

These advantages can impact the lessee’s responsibilities and obligations, which might be outlined as “stricter” than what is typically required by law or what was agreed upon in terms of rent.

As a result, it’s not unreasonable for the leasing company to review the terms of the leasing agreement and the lessee’s obligations in case of termination due to their fault.

Essentially, at the end of the lease term, the lessee must return the vehicle in the same condition it was in when they received it, allowing for normal wear and tear from regular use (as specified in § 2225 of the Civil Code).

If the lessee fails to meet this obligation, the lessor is entitled to compensation for any damages (according to § 2913 of the Civil Code). If the vehicle is damaged in a traffic accident—regardless of whether it was the lessee’s fault—this damage is not considered normal wear and tear, which means that the lessee cannot fulfill their obligation.

Therefore, if there’s an agreement stating that the lessee will pay the lessor for any difference between the book value and actual sale price when returning a damaged vehicle, this essentially acts as a fixed compensation for damages.

The Supreme Court confirmed that the lower courts’ decisions in favor of the leasing company were correct. 
Source: https://www.mesec.cz/clanky/proc-mohou-byt-podminky-operativniho-leasingu-vozu-na-jeho-najemce-prisne/