"Option to Purchase" when Leasing with BMWFS Canada

Lantern Rouge · 12-08-2014, 05:57 PM

So my F80 is due to land in Vancouver before Xmas and I'm weighing up the pro's and con's of purchasing outright now vs leasing for 24 months (with the intent to purchase at 24 months). I've been going over the T's and C's of the BMW Financial Services Canada lease contract and somewhat hung up on the language they use under section 8, "OPTION TO PURCHASE".

It reads as follows:

OPTION TO PURCHASE: If you are not in default of your obligations on this Lease, you may purchase the Vehicle on the Scheduled Termination Date for its Estimated Residual Value of $48,065.85, PLUS an administration fee of not more than $999, PLUS all fees, taxes and other charges in effect at the time of your purchase, including the cost of obtaining any certificate of fitness or similar certificate and required government inspections and related repair costs and government vehicle transfer fees in connection with your purchase, PLUS all other amounts due under this lease (“Option to Purchase”). If you wish to exercise this Option to Purchase, you must notify BMW in writing at least fifteen (15) days before the Scheduled Termination Date. Once you have notified BMW, you cannot cancel your purchase. (If you are a resident of Manitoba you have no option to purchase the Vehicle).

I'm struggling with 2 things here. First, why is a residual value "estimated" and not finite. Secondly, the admin fee of not more than $999 to buyout your vehicle at the end of a lease is not something I've ever encountered.

I've had a couple of conversations with my local dealer, who has been great. I've been told the following:

Despite the use of the word "estimated" every lease that's ever been bought out has always been at the exact amount of the residual in the lease document. They can't explain why BMWFS uses of the word "estimated".
BMWFS Canada will sell the vehicle directly to the lessee for the exact amount of the residual at the end of the lease. No $999 fee is charged. This will require couriering back and forth of bank drafts, contracts and registration papers between the lessee and BMWFS. If the dealer "manages" the transaction, that's what the $999 admin fee is for. BMWFS will not put this option in writing, so while they believe it to be true today, they can't guarantee the option 24 months from now.

Both of these topics feel a bit like unnecessary risk for any lessee who would agree to them.

Has anyone out there in Canada encountered this before, and/or successfully negotiated changes to a lease contract with BMWFS Canada?

Thanks!

myzmak · 12-09-2014, 09:26 AM

I haven't encountered that specific language before - my guess (and that is all that it is) is that in the phrase 'estimated residual value' the 'estimate' is not meant to imply that BMW does not know what the contractual residual value will be at the end of the lease, rather that the value set is only an estimation of the actual value of the car. (put another way: the buy out price is the Estimated Residual Value but that may or may not reflect the actual market value of the car at that point in time).

I say that because the clause you have quoted seems to make it clear that regardless of what the price is called, it will cost you exactly $48065.85 to buy the car.

Put one final way: defined terms don't necessarily mean anything. Call it "the Banana Price" or the "Total Arbitrary Price" or the "Here is a Number we have decided you must pay Price" and the clause would have the same effect - at the end of the day, you pay $48,065.85.

Not fantastic contractual drafting, but not awful either.

As for negotiating out of thee fee....yeah, pure money grab by them. I don't know if they will be amenable to changing the agreement. It is almost certainly a standard form agreement created by some sad, disillusioned in-house lawyer in Mississauga that had to be vetted through a bunch of other sad sacks. At most you could add a rider to the contract saying that if BMW does not manage the transaction, no fee will be charged...but the dealer may not actually have the authority to agree to that and HQ may just tell you to pound sand.

Anyway, good luck with this.

(ps: out of curiosity, if you are going to purchase, why lease? Lease rates are not exactly great right now - can't you find a cheaper way to finance?)

Lantern Rouge · 12-10-2014, 09:17 AM

Quote:

Originally Posted by myzmak

(ps: out of curiosity, if you are going to purchase, why lease? Lease rates are not exactly great right now - can't you find a cheaper way to finance?)

Thanks for your thoughts. Helpful...

I'm looking at a 24 month lease with multiple security deposits at 5.0%. In BC (I'm not sure about other provinces) the sales tax (PST/GST) on vehicles over $55,000 is 15%. If I lease for 24 months, and buy the vehicle under $55k, the sales tax is 12% on the latter half.

All of this combines the total cost of ownership to very similar numbers. The advantage to leasing for 24 months is that I can use my capital elsewhere for that timeframe.

My model blows up if I have to pay another $999 to buy it out, or if there is any risk to the buyout figure though. Hence the questions. Cheers...

myzmak · 12-10-2014, 11:00 AM

Quote:

Originally Posted by Lantern Rouge

Thanks for your thoughts. Helpful...

I'm looking at a 24 month lease with multiple security deposits at 5.0%. In BC (I'm not sure about other provinces) the sales tax (PST/GST) on vehicles over $55,000 is 15%. If I lease for 24 months, and buy the vehicle under $55k, the sales tax is 12% on the latter half.

All of this combines the total cost of ownership to very similar numbers. The advantage to leasing for 24 months is that I can use my capital elsewhere for that timeframe.

My model blows up if I have to pay another $999 to buy it out, or if there is any risk to the buyout figure though. Hence the questions. Cheers...

Fair enough.

I dunno, a 1% swing on $100k of capital (give or take on what options you have) is pretty hard to predict with precision. You could have invested $50k last week in the market and easily lost much more than $1k. Or you put it in something next week and make a bunch. or lose a bunch more.

I tend to go with something of a blend. Put down a lot and get the cheapest financing I can get on the remainder. I've only used leasing when the rate was essentially free (like 0.9%) and I plan to just buy out in cash at the end. Otherwise, I prefer financing and big down payments so my 'equity' in the car is much greater from an earlier point. I dislike debt (especially on a depreciating asset) but I'm also not petrified of it, as long as the amounts of it can call be covered by other sources if the shit really hit the fan.

Lantern Rouge · 12-10-2014, 11:56 AM

Yeah, I think you and I think very similarly on this topic. My model "blowing up" was probably not the right choice of words for what I'm thinking. A better way to say it would be that I am just unwilling to pay a $299 admin fee at the start of a lease, and a $999 fee at the end of the lease to BMWFS for the pleasure of borrowing funds.

When you've got capital, and/or the ability to borrow at lower rates, $1,300 on admin fees is just flushing money away

Cheers...

myzmak · 12-10-2014, 01:21 PM

Quote:

Originally Posted by Lantern Rouge

Yeah, I think you and I think very similarly on this topic. My model "blowing up" was probably not the right choice of words for what I'm thinking. A better way to say it would be that I am just unwilling to pay a $299 admin fee at the start of a lease, and a $999 fee at the end of the lease to BMWFS for the pleasure of borrowing funds.

When you've got capital, and/or the ability to borrow at lower rates, $1,300 on admin fees is just flushing money away

Cheers...

All dealer admin fees are like salty lemon juice on a paper cut.

Friend of mine once went full on screaming at a dealer over the "administration" fee they were charging ('yes, I know you have overhead, that is built into the price we agreed to - I am not paying that!!')

The problem is on new cars dealers make so little on each vehicle they have all these stupid fees to try to give them the profits they need to justify their business rather than just being more honest 'no, I wont sell you that car for this little'. On used cars, they just make a much bigger markup per car.

bornyesterday · 02-19-2015, 03:20 PM

lease ftw!!!

pokerface · 02-20-2015, 04:08 PM

Is the buyout admin fee customized per model? When I leased my X3 in 2013 the admin fee was $500.

myzmak · 02-20-2015, 09:50 PM

Quote:

Originally Posted by johnr1lee

lease ftw!!!

Today's globe....

http://www.theglobeandmail.com/globe...ticle23112792/

bornyesterday · 02-21-2015, 06:13 PM

Quote:

Originally Posted by myzmak

Today's globe....

http://www.theglobeandmail.com/globe...ticle23112792/

again lease ftw

12-08-2014, 05:57 PM	#1
Lantern Rouge Private 18 Rep 93 Posts Drives: 2015 F80 M3 YMB Join Date: Aug 2014 Location: Vancouver, Canada iTrader: (1) Garage List 2015 BMW M3 [0.00]	"Option to Purchase" when Leasing with BMWFS Canada So my F80 is due to land in Vancouver before Xmas and I'm weighing up the pro's and con's of purchasing outright now vs leasing for 24 months (with the intent to purchase at 24 months). I've been going over the T's and C's of the BMW Financial Services Canada lease contract and somewhat hung up on the language they use under section 8, "OPTION TO PURCHASE". It reads as follows: OPTION TO PURCHASE: If you are not in default of your obligations on this Lease, you may purchase the Vehicle on the Scheduled Termination Date for its Estimated Residual Value of $48,065.85, PLUS an administration fee of not more than $999, PLUS all fees, taxes and other charges in effect at the time of your purchase, including the cost of obtaining any certificate of fitness or similar certificate and required government inspections and related repair costs and government vehicle transfer fees in connection with your purchase, PLUS all other amounts due under this lease (“Option to Purchase”). If you wish to exercise this Option to Purchase, you must notify BMW in writing at least fifteen (15) days before the Scheduled Termination Date. Once you have notified BMW, you cannot cancel your purchase. (If you are a resident of Manitoba you have no option to purchase the Vehicle). I'm struggling with 2 things here. First, why is a residual value "estimated" and not finite. Secondly, the admin fee of not more than $999 to buyout your vehicle at the end of a lease is not something I've ever encountered. I've had a couple of conversations with my local dealer, who has been great. I've been told the following: Despite the use of the word "estimated" every lease that's ever been bought out has always been at the exact amount of the residual in the lease document. They can't explain why BMWFS uses of the word "estimated". BMWFS Canada will sell the vehicle directly to the lessee for the exact amount of the residual at the end of the lease. No $999 fee is charged. This will require couriering back and forth of bank drafts, contracts and registration papers between the lessee and BMWFS. If the dealer "manages" the transaction, that's what the $999 admin fee is for. BMWFS will not put this option in writing, so while they believe it to be true today, they can't guarantee the option 24 months from now. Both of these topics feel a bit like unnecessary risk for any lessee who would agree to them. Has anyone out there in Canada encountered this before, and/or successfully negotiated changes to a lease contract with BMWFS Canada? Thanks!
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12-09-2014, 09:26 AM	#2
myzmak Advocatus Douchebagus. Sex Marxist. 2415 Rep 3,415 Posts Drives: Lucy. Join Date: May 2012 Location: Canada iTrader: (0) Garage List 2015 F80 M3 [10.00] 2013 MB E350 Wagon [10.00]	I haven't encountered that specific language before - my guess (and that is all that it is) is that in the phrase 'estimated residual value' the 'estimate' is not meant to imply that BMW does not know what the contractual residual value will be at the end of the lease, rather that the value set is only an estimation of the actual value of the car. (put another way: the buy out price is the Estimated Residual Value but that may or may not reflect the actual market value of the car at that point in time). I say that because the clause you have quoted seems to make it clear that regardless of what the price is called, it will cost you exactly $48065.85 to buy the car. Put one final way: defined terms don't necessarily mean anything. Call it "the Banana Price" or the "Total Arbitrary Price" or the "Here is a Number we have decided you must pay Price" and the clause would have the same effect - at the end of the day, you pay $48,065.85. Not fantastic contractual drafting, but not awful either. As for negotiating out of thee fee....yeah, pure money grab by them. I don't know if they will be amenable to changing the agreement. It is almost certainly a standard form agreement created by some sad, disillusioned in-house lawyer in Mississauga that had to be vetted through a bunch of other sad sacks. At most you could add a rider to the contract saying that if BMW does not manage the transaction, no fee will be charged...but the dealer may not actually have the authority to agree to that and HQ may just tell you to pound sand. Anyway, good luck with this. (ps: out of curiosity, if you are going to purchase, why lease? Lease rates are not exactly great right now - can't you find a cheaper way to finance?) __________________ Drivin' Lucy Last edited by myzmak; 12-09-2014 at 09:32 AM..
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12-10-2014, 11:56 AM	#5
Lantern Rouge Private 18 Rep 93 Posts Drives: 2015 F80 M3 YMB Join Date: Aug 2014 Location: Vancouver, Canada iTrader: (1) Garage List 2015 BMW M3 [0.00]	Yeah, I think you and I think very similarly on this topic. My model "blowing up" was probably not the right choice of words for what I'm thinking. A better way to say it would be that I am just unwilling to pay a $299 admin fee at the start of a lease, and a $999 fee at the end of the lease to BMWFS for the pleasure of borrowing funds. When you've got capital, and/or the ability to borrow at lower rates, $1,300 on admin fees is just flushing money away Cheers...
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02-19-2015, 03:20 PM	#7
bornyesterday Private 18 Rep 58 Posts Drives: F82, E92 Join Date: Feb 2015 Location: Vancouver, BC iTrader: (0)	lease ftw!!!
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02-20-2015, 04:08 PM	#8
pokerface Colonel 430 Rep 2,524 Posts Drives: F25 X3 N20 / F80 ZCP Join Date: Apr 2006 Location: Toronto iTrader: (1)	Is the buyout admin fee customized per model? When I leased my X3 in 2013 the admin fee was $500.
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