Ask what is the new disc thickness, the minimum specified thickness and what is the measured thickness of your discs. If the discs are more than half worn, then there probably isn't enough material left for another set of pads. They'd still be okay for a while with new pads, but the discs would probably wear below minimum before the pads wear out. A dealer would be failing in his duty if he allowed you to get into that situation.

As for pads, they should be replaced once the friction material thickness falls below 3mm. Some manufacturers are specifying 2mm with recent improvements in manufacturing, but I prefer to err on the side of caution. At this thickness you are using the "interlayer" for braking, and the performance of this layer falls off rapidly with wear. The interlayer changes the chemical composition of the pad from that which is suitable for providing braking to that which is suitable for adhering the pad to the backing plate.

To add, I would generally expect a pair of discs to be good for 2 sets of pads and need replacing with the third. Other factors, such as overnight corrosion may affect thsi though. 40k is a shade soon but not too bad.

My Saabs discs went through 2 sets of pads and then needed new discs at about 50k as an example. I was fine with that.

>>The dealership is saying they are lipped if I read correctly.

After 40K I'd be surprised if they weren't.

As Cyd{P} says, ask for more information.