Mike North, accountant at Katz, Sapper & Miller, stated at the LHPH Summit in 2019 that after discussing the sales tax advantage, dealers want to discuss insurance requirements and liability regarding a Lease-Here Pay-Here program.
Virtually all States require the buyer/lessee to have full coverage, or at least State Minimum Financial Responsibility Limits (liability), to finance or lease a vehicle. These state minimum coverages can vary substantially by state. In addition, the lease agreement the lessee signs may require greater coverage than the state minimum car insurance requirements. It is important to be aware of both, so the lessee and lessor are compliant with state regulations and with the lease agreement.
In 2005, President George W. Bush signed into law the Transportation Equity Act of 2005, a comprehensive transportation bill which included the Graves Amendment. This amendment relieved rental car companies and lessors of vicarious liability which before, meant the renters and lessors could be held liable for the negligent acts of a driver who was using the vehicle. The Graves Amendment declares that leasing companies shall not be held vicariously liable under any State law for damages sustained in a motor vehicle accident.
There are a handful of states that may require additional due diligence on the part of the lessor. Always consult your legal counsel to identify any state-specific insurance regulations that may apply. Reach out to LHPH if you have any Lease-Here Pay-Here questions!