Lease

Lease Meaning

Leasing is an arrangement in which the right to use the asset is transferred to another person by the owner of the asset without transferring the ownership of the asset. Thus, in simple terms, it means giving the asset on hire or rent for use. The person who gives the asset is known as “Lessor” and the person who takes the asset on rent is known as “Lessee”.

Components

Types of Lease

An arrangement may be of following types:

Types of Lease

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How does it Work?

Leasing allows the lessee to enjoy the right to use an asset without actually owning it. To enjoy such a right to use the asset, the lessee is required to make lease paymentsLease PaymentsLease payments are the payments where the lessee under the lease agreement has to pay monthly fixed rental for using the asset to the lessor. The ownership of such an asset is generally taken back by the owner after the lease term expiration.read more to the lessor. The frequency of such payment can be monthly, quarterly, or yearly depending on the contract. The ownership of the asset remains with the lessor only.

An arrangement ensures the lessee with the right to use an asset without paying the purchase price for the same. For the lessor, the arrangement ensures periodic receipt of lease rentals as against the right to use the asset.

Entering into an arrangement involves negotiation from both the parties. Thus, before a lease agreement is finally signed, terms need to be finalized between the parties. Finalizing a lease is a subjective matter; however, in most cases, it takes 2-3 days.

Lease

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Lease vs. Rent

CriteriaLeaseRent
MeaningAgreement between parties where one party transfers the right to use the asset to another party for the defined time periodRenting is a short-term agreement whereby rent is paid by the party to the owner for the use of any asset such as building, car, etc.
PartiesLessor and LesseeLandlord and Tenant
MaintenanceThe responsibility lies on a lessee.The responsibility lies on the landlord.
DurationLong TermShort Term
Alteration in ContractNot possibleA landlord can alter the contract.
Offer at the expiry of the contract.Lessee is provided with an opportunity to buy the asset.No such opportunity is provided in rent

Advantages

Disadvantages

Conclusion

An entity should consider various facts such as availability of funds, nature of the asset, a period for which asset is required. Then only a decision can be taken whether leasing will be beneficial or not.

This article has been a guide to Lease and its Meaning. Here we discuss components, types, how does it work along with advantages, disadvantages, and its differences from rent. You can learn more from the following articles –