Lease
What is lease?
A lease is a legal contract between the owner (lessor) of a property and the renter (lessee) for use of that property for an agreed period. It sets out the terms and conditions applicable to the use of that property, including the length of agreement, monetary contributions, rules and regulations etc. A lease agreement may be oral or written but if it extends beyond three years it must be in writing.
Types of Leases
Finance leasing and operating leasing are two of the most common types of leases.
1. Finance leasing: It involves the tenant paying for the asset in regular payments until ownership is transferred, usually at the end of the lease term. A finance lease is reflected as an off-balance sheet item on the lessee’s balance sheet.
2. Operating leasing: It offers the option of flexible operational use of assets with little commitment other than periodic payment of rentals.
3. Contract hire leases: These are agreements between two parties specifying that contractual rent be paid over an agreed period in exchange for exclusive use of an asset with no buyout option at maturity.
Difference between lease and rent
| Aspect | Lease | Rental Agreement |
|---|---|---|
| Duration | Typically lasts for multiple years | Usually month-to-month |
| Renter Rights | Fewer rights; landlord has more control | More rights for renters |
| Control | Landlord retains more control over property activities and maintenance | Renter has more flexibility |
| Security Deposit | Often non-refundable | Usually refundable |
| Commitment | Longer-term commitment | Shorter-term, more flexible |
