Rent-to-own: the right to reinstate your contract

This is what the street calls "rent to own": you pay weekly or biweekly for furniture, a refrigerator, a washer or a television, and when you complete all the payments the item is yours. The law treats it as its own category and expressly removes it from three others: contracts of one year or less as defined by this law are not governed by Act 76-1994 on personal property lease contracts, nor by Act 20-1973 on personal property leasing institutions, nor by Act 68-1964 on instalment sales and finance companies. It also clarifies that these contracts do not create a security interest under the Commercial Transactions Act, unless the lessor chooses to record them in the Commercial Transactions Registry.

A lessee is a natural person who leases personal property under one of these contracts, to use it primarily for personal, family or household purposes. The law lists what is excluded and it is worth checking before invoking it: contracts primarily for business, agricultural or commercial purposes, or those made with government agencies, their instrumentalities or organizations; the lease of a safe deposit box; that of personal property permanently affixed to real estate; the lease of an automobile; and the lease of real property or its improvements. And there is a substantive exclusion: the law does not apply to lease agreements where the person leasing the property has no legal right to become its owner.

• To reinstate: having voluntarily returned the property to the lessor within five (5) days following the deadline of the payment you missed.Verified against the official source
• If you had paid less than sixty percent (60%) of the total: that no more than sixty (60) days have passed since you returned the property.Verified against the official source
• If you had paid more than sixty percent (60%): your reinstatement rights extend for a period of no less than one hundred eighty (180) days from the return.Verified against the official source

• The signed contract, of which the lessor must give you an exact copy before you make any payment.
• The receipts: the lessor must give or send you a receipt for any cash payment and, upon your request, a list of all charges, payments and their dates. They may charge five dollars ($5.00) for that list.

1. 1

   Step 1: Read the notice the contract must carry

   The law requires every contract to contain, in at least 8-point standard type, a notice reading: "NOTICE TO LESSEE: (1) DO NOT SIGN THIS RENT-TO-OWN CONTRACT BEFORE READING IT. (2) YOU HAVE THE RIGHT TO RECEIVE A DULY COMPLETED COPY OF THIS CONTRACT. (3) UNDER THIS LAW, IF YOU HAVE THE RIGHT TO EXERCISE AN EARLY PURCHASE OPTION, THE CONTRACT MUST DESCRIBE THE FORMULA FOR CALCULATING THE EARLY PURCHASE PRICE." If your contract does not carry it, that is a failure to comply with the law.

2. 2

   Step 2: Demand there be no blank spaces

   All blank spaces on the contract forms must be completed before the contract is signed. And the required information must be disclosed before the contract is perfected, written on the face of the document evidencing it, clearly, conspicuously and in a logical order. Before you make any payment, the lessor must provide you an exact copy of the contract.

3. 3

   Step 3: Check the late charge against the law’s cap

   A rent-to-own contract may not require late charges unless the payment is more than three (3) business days late, and the charge may not exceed ten percent (10%) of the late payment or three dollars ($3.00), whichever is less. Note "whichever is less": in practice the cap is usually $3.00. A larger charge is a prohibited provision.

4. 4

   Step 4: If you fall behind, return the item within five days

   This is the part that saves money. A lessee who fails to make payments on time may reinstate the original contract, without losing any right or option previously acquired, if after missing a timely payment they voluntarily returned the property to the lessor within five (5) days following that payment’s deadline. The voluntary and timely return is what preserves what you already paid.

5. 5

   Step 5: Know how long you have to reinstate

   It depends on how much you had paid. If you have paid less than sixty percent (60%) of the total dollar amount needed to own it, no more than sixty (60) days may have passed since you returned the property. If you have paid more than sixty percent (60%), your reinstatement rights extend for a period of no less than one hundred eighty (180) days after the return. As a condition for reinstating, the lessor may charge you the balance of accrued payments and late charges, a reinstatement fee not exceeding five dollars ($5.00), and an amount for shipping if the item must be sent back.

6. 6

   Step 6: If they do not have the same item, demand a comparable one

   If reinstatement occurs, the lessor must provide you the same item you were leasing before, if available. If it is not, a substitute item of comparable value, quality and condition may be provided, and in that case the lessor must give you all the Article 4 disclosure information again.

7. 7

   Step 7: Claim if there was a violation

   In case of a violation of this law related to any transaction, the lessee may recover from the violator — or raise it as a setoff or counterclaim in any action by that person — actual damages, with a minimum recovery of three hundred dollars ($300.00) or twenty-five percent (25%) of the price outstanding at the time of the claim, whichever is greater. The Secretary of Consumer Affairs may also impose an administrative fine not exceeding five thousand dollars ($5,000.00) per violation. And reasonable attorney’s fees and costs must be awarded to the prevailing party, regardless of who brought the action.

The Secretary of Consumer Affairs administers this law and imposes the administrative fines, so the complaint goes to DACO. The law also contemplates the judicial route: the lessee may recover directly from the violator or raise the violation as a defense, setoff or counterclaim if it is the lessor suing you. A procedural detail in your favor: when a defendant-lessee alleges in their answer that they paid the full amount the plaintiff was entitled to, or that they surrendered possession of the leased good, and that allegation proves true, they are the prevailing party for purposes of fees and costs.

• Letting them take the item without voluntarily returning it within five days: that is what opens the right to reinstate.
• Believing you lost everything you paid, when reinstatement preserves rights and options already acquired.
• Paying late charges greater than $3.00 or 10% of the late payment, whichever is less.
• Accepting a late charge when the delay is not more than three business days.
• Signing with blank spaces, which the law expressly prohibits.
• Starting to pay without having received an exact copy of the contract.
• Invoking this law for a car lease, which is expressly excluded.
• Not asking for a receipt for cash payments, which the lessor is obliged to give you.

These are the government pages this guide is based on.

• Departamento de Asuntos del Consumidor (DACO)

  DACO

  bvirtualogp.pr.gov

• DACO services

  DACO

  www.daco.pr.gov