Lessees and lessors are the main parties in a lease contract
in real estate and other industries, in which the lessee pays the lessor for
the use of a good or service for a set period of time.
What Is a Lessor?
A lessor lends an asset to another person or party for use
over a set period of time. A rental agreement will be signed by the lessor, who
could be a property owner, a car dealership, or another leasing company. The
lessor or a lease administrator will keep financial records to ensure that the
renter fulfills all legal obligations and makes timely lease payments.
The lessor, or lender, typically owns the good and must be
forthcoming in all disclosures about the condition of the good or service.
Cars, homes, insurance policies, and other goods and commodities are all
leased.
What Is a Lessee?
The lessee is the person or entity that rents a product or
service from the lessor. The lessee does not own the asset; rather, they rent
it for the duration of the lease by making periodic payments. To lease the
asset, the renter must typically provide proof of salary in the form of an
income statement, ensuring that the person has the funds to lease the asset.
They may also make a one-time payment at the beginning of the contract, which
may take the form of a security deposit.
Lessor vs. Lessee
Lessor and lessee are leasing terms that serve different
functions. The lessor will have control over or ownership of the property, car,
or asset. The lessee will pay for the asset's use over a set period of time by
making payments, often in monthly installments, to the lessor individual or
leasing company.
While the terms of the lease agreement are usually defined
by the lessor based on the rental valuation, the lessee can sometimes negotiate
price and details. After making sufficient payments, the lessee may be able to
purchase the asset from the lessor; however, those terms must be agreed upon at
the contract signing.
3 Types of Lease Agreements
The following are examples of common lease agreements:
1. Capital lease: The lessee receives theoretical ownership
rights but not the deed in this financial lease. The lessee is responsible for
all maintenance and damage, but they are free to use the property or asset as
they see fit. The lessee is responsible for both the risks and the benefits of
the good.
2. Leaseback: A leaseback agreement, also known as a sale
and leaseback agreement, requires one party to purchase an asset from another and
then lease it back to them. In this case, the seller becomes the lessee and the
buyer becomes the lessor. This type of lease agreement is more common among
banks and insurance companies.
3. Operating lease: This type of lease ensures that the
lessor retains complete ownership of the asset. The lessor is responsible for
all maintenance and day-to-day expenses, while the lessee pays for the item in
agreed-upon installments. An example of an operating lease is renting an
apartment.
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