Definition
A lease is a contractual arrangement calling for the to pay the lessor for use of an asset. Property, buildings and vehicles are common assets that are leased. Industrial or business equipment is also leased.
Lease
What is a ‘Lease ‘
A lease is a contract outlining the terms under which one party agrees to rent property owned by another party. It guarantees the lessee, the tenant, use of an asset and guarantees the lessor, the property owner or landlord, regular payments from the lessee for a specified number of months or years. Both the lessee and the lessor face consequences if they fail to uphold the terms of the contract. Next Up Single Net Lease Lessee Gross Lease Triple Net Lease
Explaining ‘Lease ‘
Leases are the legal and binding contracts that set forth the terms of rental agreements in real estate. If a person wishes to rent an apartment or other residential property, for example, the lease prepared by the landlord describes the monthly rent amount, when it is due each month, what happens if the lessee fails to pay his rent, how much of a security deposit is required, the duration of the lease, whether the lessee is allowed to keep pets on the premises, how many occupants can live in the unit and any other essential information. The landlord requires the tenant to sign the lease, thereby agreeing to its terms before occupying the property.
Breaking a Lease
Consequences for breaking leases range from mild to damaging, depending on the circumstances under which they are broken. A tenant who breaks a lease without prior negotiation with the landlord faces a civil lawsuit, a derogatory mark on his credit report or both. As a result of breaking a lease, a tenant may also encounter problems renting a new residence, as well as other issues associated with having negative entries on a credit report. Tenants who need to break their leases often must negotiate with their landlords or seek legal counsel. In some cases, finding a new tenant for the property or forfeiting the security deposit inspires landlords to allow tenants to break their leases with no further consequences.
Other Types of Leases
Tenants who lease commercial properties sign various types of leases structured to put more responsibility on the tenant and provide greater up-front profit for the landlord. For example, some commercial leases require the tenant to pay rent plus the landlord’s operational costs, while others require tenants to pay rent plus property taxes and insurance.
Further Reading
- Lease accounting: A review of recent literature – www.tandfonline.com [PDF]
- Issues in lease financing – www.jstor.org [PDF]
- Operating lease finance in the UK retail sector – www.tandfonline.com [PDF]
- Capital structure and the changing role of off-balance-sheet lease financing – papers.ssrn.com [PDF]
- The fixed payment financing decision: To borrow or lease – www.sciencedirect.com [PDF]
- Economic and institutional determinants of lease financing for European SMEs: An analysis across developing and developed countries – www.tandfonline.com [PDF]
