Difference Between Lessor and Lessee
The lessor refers to the person who owns the asset and allows the other person, known as lessee, to use their asset by getting periodic rent in return whereas a lessee refers to the person who uses the asset owned by another person, known as lessor, for a specified period by paying some periodic rent as per the terms of agreement.
The lessor is the owner of the property and does not use it for its own use; on the other hand, the lessee temporarily acquires the property and uses it for its own use. 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 is over, the lessee returns the asset to the lessor. The lessor can be an individual or an entity, and 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
- A lessor is an individual or an entity who rents his property or his asset to another individual or entity. The lessor can be used as a synonym to the owner or landlord. One key point to remember is that the lessor is responsible for repairs which are not caused by the lessee
- In financial terms, a lessee is a person to whom we rent or loan something. In return to this, the lessee pays rent or lease. A lessee can be considered as a synonym to a renter or with a tenant
Lessor vs. Lessee Infographics
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 and his own 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, then the lessor 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.
- Since 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 on the property or the asset.
- 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 and 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, fire.
- Being the owner of the asset, the lessor has the complete right to take the asset or the property from the current lessee and lend it to some other 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
| Particular | Lessor | Lessee | ||
| Definition | He the owner of the asset and the person who grants his assets to the lessee for lease; | A lessee can also be termed as a borrower. He takes temporary possession of the property or the asset from the lessor. | ||
| Compensation | In return of giving the asset to the lessee for lease, the compensation the lessor gets is the total amount of lease. | They get the asset or property for temporary use and, in turn, pays the lease. | ||
| Status | The legal owner of the asset; | Just a borrower and does not enjoy any legal owner status | ||
| Bankruptcy | If the lessee gets bankrupt, then the lessor has the right to get the payments first. | Has no relation to the bankruptcy of the lessor | ||
| Owner | The 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 restrictions | Since lessor is the owner of the asset, the number of restrictions is less. | The obligations for the lessee are much higher. This is in case of damages or utilizing the asset as not mentioned in the contract. | ||
| Restriction | Since 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 on the property or the asset. | ||
| Taxation | As the owner of the asset, the lessor has to pay the taxes against the income and the property. | Lessee is only using the asset temporarily and, therefore, does not have to pay the taxes. | ||
| Wear and tear of the assets | As the owner, it is the responsibility of the lessor to take care of the assets and pay for the repair and maintenance. | The lessee’s responsibility is limited to the time he is using the assets. The agreement also specifies regarding the repair and maintenance and the responsibility. | ||
| Other utility charges | The clause for utility charges is also mentioned in the contract. However, generally, the lessor is not responsible for the payment of utility charges. | Till the time the asset is with the lessee, he is responsible for paying for the utility charges. | ||
| Termination of contract | 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, fire. |
Conclusion
The contract, calculations of the lease, valuation of the property all depends on the type of lease. It can either be an operating lease or a financial lease. The lesser and the lessee are the two main parties of the contract who come together and form an agreement.
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All the businesses today have some type of lease payment. 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 take benefit of the entire asset.
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