Difference Between Lease and Rent
Lease is a type of agreement where lessor gives possession of its assets to lessee for predetermined period in lieu of periodic payments where maintenance of such is the responsibility of lessee whereas Rent is an arrangement where the possession is transferred by asset owner or landlord to its tenant for periodic payments where landlord can change the terms subsequently and it is generally for short term.
On the surface, lease and rent seem similar, but there is a major difference between the two of them.
- When an asset is given on a lease; the responsibility of maintenance lies on the lessee. That means when a business takes an asset on a lease, the responsibility of maintenance lies in the business.
- On the other hand, when an asset is rented; the responsibility of maintenance lies on the person who rents the asset or the property.
Without any ado, let’s get started.
Lease vs Rent Infographics
- The lease is taken when a business doesn’t have ample fixed capital, and at the same time wants to use the asset but doesn’t want to pay for it. Rent on the other hand is taking property for a monthly fee.
- Leasing contracts have two parties – lessor and lessee. A rental agreement has two parties as well – landlord and tenant.
- Leasing is usually done for assets/equipment. Renting is mostly done for properties or lands.
- In leasing, the servicing and maintenance are done by the lessee when s/he takes the equipment on lease. In renting, on the other hand, the servicing and maintenance are done by the landlord even if the tenant takes the property on rent.
- Leasing is done for a fixed period of time – mostly for the medium to long term. Renting is done for a short period of time and the emphasis is on every month.
- In leasing contracts, the terms and conditions are predetermined and the contracts are made by taking mutual acceptance. In renting agreement, the terms and conditions can be changed anytime.
- In leasing, an offer of purchase is given on the expiry of the leasing contract. There’s no such offer given on the expiry of renting agreement.
Lease vs Rent Comparative Table
|Basis for Differences||Lease||Rent|
|1. Meaning||The lease is entering into a contract with the lessee for a long period to use an asset/property.||Rent is entering into an agreement with the tenant for a certain period to use an asset/property.|
|2. Term||Usually, a leasing contract is signed for the long term.||The rental agreement is signed for the short term.|
|3. Accounting standards||Leasing contracts are based on accounting standard 19 (AS-19).||There’s no particular accounting standard that is followed in renting agreement.|
|4. Parties||Lessor and lessee.||Landlord and tenant.|
|5. Consideration considered||The monthly installments are paid for the lease.||Rent is paid monthly/quarterly for using the property/asset.|
|6. Maintenance||In leasing, the responsibility of maintenance of the asset lies on the lessee.||In renting, the responsibility of maintenance of the asset lies on the tenant.|
|7. Change in contract/agreement||Once the contract is signed, there’s no change in the contract for a fixed period of time.||The landlord can change the agreement anytime s/he chooses.|
|8. Offer at expiry||Once the term is over, the lessee is asked to purchase the asset/property.||There is no such offer given to the tenant by the landlord.|
Both are different, but to a layman, they stand similar. That’s why it is important to go deep into the concept and understand. Even if the major difference between leasing and renting is who needs to do the maintenance and servicing, there are other differences too.
And even if two parties are involved in the contract/agreement, the roles of each party are different. For example, in a leasing contract, both parties have equal rights. But in renting agreement, the landlord has more power than the tenant though both can decide to go out of agreement whenever they want.
Lease vs Rent Video
This has been a guide to Lease vs Rent. Here we discuss the top 8 differences between them along with infographics and comparison table. You may also have a look at the following articles for gaining further knowledge in accounting –
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- Financial Lease vs Operating Lease
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- Mortgage vs Hypothecation
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- What is Hypothecation?