Lease

Definition

A lease is an agreement, or contract, entered into by two parties.  The lessor is the party that gives the lessee the right to use the asset or property, while the lessee is the party that agrees to pay the lessor for the use of the property or asset.

Explanation

The most common lease agreement in the corporate environment is the lease on a building or facility.  There are two basic kinds of leases:

  • Capital Lease:  this type of lease involves the use of an asset over most of its useful life, therefore the arrangement is similar to a long term financing agreement.
  • Operating Lease:  in this type of lease, the lessor grants the lessee the use of the property for a limited period of time, while the risks and rewards of ownership continue to reside with the lessor.

A lease is considered a legal contract.  As such, the terms and conditions in the agreement commonly include:

  • The exact property to be leased
  • Names of the lessee and lessor, and any other party to the contract
  • Duration of the lease, including both the start date as well as its duration
  • Payment schedule, including any upfront money such as a security deposit
  • Identification of responsible parties for maintenance and expenses associated with the property
  • A dispute settlement process, including the return of money held as a security deposit

Related Terms

capital lease, operating lease, asset, leasehold, leveraged lease