Lessor vs Lessee

Updated on January 3, 2024
Article byWallstreetmojo Team
Edited byAshish Kumar Srivastav
Reviewed byDheeraj Vaidya, CFA, FRM

Difference Between Lessor and Lessee

The lessor refers to the person who owns the asset and allows the other person, known as the lessee, to use their asset by getting periodic rent in return. In contrast, a lessee refers to the person who uses the asset owned by another person, known as a lessor, for a specified period by paying some periodic rent per the terms of the agreement.

The process of leasing is very simple. It begins with the lessor giving his asset or property to the lessee. Then the lessee pays monthly agreed-upon lease or rent to the lessor. After the contract, the lessee returns the asset to the lessor. The lessor is the property owner and does not use it for its use; on the other hand, the lessee temporarily acquires the property and uses it for its use. The lessor can be an individual or an entity; the assets leased can be a building, vehicle, or even Industrial equipment and business equipment. The lease assets can also be intangible properties like computer software.

Lessor-vs-Lessee

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Lessor vs Lessee (wallstreetmojo.com)

Accounting for Financial Analyst (16+ Hours Video Series)

–>> p.s. – Want to take your financial analysis to the next level? Consider our “Accounting for Financial Analyst” course, featuring in-depth case studies of McDonald’s and Colgate, and over 16 hours of video tutorials. Sharpen your skills and gain valuable insights to make smarter investment decisions.

Lessor vs. Lessee Infographics

Lessor-vs-Lessee-info

You are free to use this image on your website, templates, etc, Please provide us with an attribution linkHow to Provide Attribution?Article Link to be Hyperlinked
For eg:
Source: Lessor vs Lessee (wallstreetmojo.com)

Key Differences

The key differences are as follows –

  • The lessor is the owner and has the right to transfer the asset to anyone. However, the lessee is the temporary owner, who lies to the extent of the contract and the agreed payment.
  • Possession is in the hand of the lessee while the ownership lies with the lessor.
  • If the lessee gets bankrupt, the lessorLessorA lessor is an individual or entity that leases out an asset such as land, house or machinery to another person or organization for a certain period.read more has the right to get the payments first. The lessee has no relation to the bankruptcy of the lessor since he does not owe the lessee any money.
  • Lessee has restrictive control over the property or the asset. Since the lessor is the owner, there is no restriction on him for property usage. However, permission is required when the property is under-lessee.
  • The compensation paid to the lessor is the amount of lease or rent. However, the benefit to the lessee is the temporary use of the asset without having to invest the entire sum of money.
  • The lessor can terminate the contract in case any damage is done to his property by the lessee or in case the lessee breaks any clause of the contract. The lessee can also terminate the contract in case of an unknown event like a flood or fire.
  • As the asset owner, the lessor has the absolute right to take the asset or property from the current lessee and lend it to another lessee. However, this privilege is not given to the lessee. He does not have the right to give anyone else to use the property.

Comparative Table

ParticularLessorLessee
Definition He is the owner of the asset and the person who grants his assets to the lessee for lease;A lessee can also be termed a borrower. He takes temporary possession of the property or the asset from the lessor.
CompensationIn return for giving the asset to the lessee for lease, the compensation the lessor gets is the total lease amount.They get the asset or property for temporary use and, in turn, pay the lease.
StatusThe legal owner of the asset;Just a borrower and does not enjoy any  legal owner status
BankruptcyIf the lessee gets bankrupt, then the lessorLessorA lessor is an individual or entity that leases out an asset such as land, house or machinery to another person or organization for a certain period.read more has the right to get the payments first.Has no relation to the bankruptcy of the lessor
OwnerThe real ownership remains with the lessor.Lessee is the temporary owner.
Asset Possession The lessor does not possess the asset.Lessee possesses the asset.
Legal  restrictionsSince the lessor is the asset owner, the number of restrictions is less.The obligations for the lessee are much higher. It is in case of damages or utilizing the asset as not mentioned in the contract.
Restriction Since the lessor is the owner, there is no restriction on him for property usage. However, permission is required when the property is under-lessee.Lessee has restrictive control over the property or the asset.
TaxationAs the asset owner, the lessor has to pay the taxes against the income and the property.The lessee only uses the asset temporarily and, therefore, does not have to pay the taxes.
Wear and tear of the assetsAs the owner, the lessor’s responsibility is to take care of the assets and pay for the repair and maintenance.The lessee’s responsibility is limited to the time he uses the assets. The agreement also specifies the repair and maintenance and the responsibility.
Other utility chargesThe clause for utility charges is also mentioned in the contract. However, generally, the lessor is not responsible for paying utility charges.Until the asset is with the lessee, he is responsible for paying for the utility charges.
Termination of contractCan terminate the contract in case any damage is done to his property by the lessee or in case the lessee breaks any clause of the contract.The lessee can also terminate the contract in case of an unknown event like a flood or fire.

Conclusion

The contract, calculations of the lease, and valuation of the property all depend on the type of lease. It can either be an operating leaseOperating LeaseAn operating lease is a type of lease that allows one party (the lessee), to use an asset held by another party (the lessor) in exchange for rental payments that are less than the asset's economic rights for a particular period and without transferring any ownership rights at the end of the lease term.read more or a financial lease.  The lesser and the lessee are the two main parties of the contract which come together and form an agreement.

All the businesses today have some lease paymentsLease PaymentLease 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. Organizations find it feasible to take assets or property on the lease because they do not have to invest the entire amount of money and can still benefit from the entire asset.

Recommended Articles

This has been a guide to Lessor vs. Lessee. Here we discuss the top 12 differences between lessor and lessee, infographics, and a comparison table. You may also have a look at the following articles –

Reader Interactions

Leave a Reply

Your email address will not be published. Required fields are marked *