A lease is a contractual arrangement where one party, called the lessor, provides an asset for use by the other party, referred to as the lessee, based on the lease agreement. For example, when a customer hires a safe deposit locker from the bank, the relation between the bank and the customer is lessor and lessee. The bank is the lessor (licensor) and the hirer of the safe deposit locker is the lessee (licensee/tenant).
The lease agreement: In a lease agreement, the lessor is the person or party that issues the lease (allows the property to be rented), and the lessee is the person to whom the lease is granted (the person paying rent to use the property). The lease agreement outlines the terms of the contract and sets the legal obligations associated with the use of the asset. Both parties are signatories to the agreement and are required to abide by its rules. If either of the parties contravenes the conditions of the lease agreement, the contract can be terminated.
Lessor: A lessor is someone who owns a property or item rents it out for a specific period to another party and receives rental payment from the user (lessee).
Lessee: A lessee is someone who receives the right to use the asset of the property owner (lessor) in exchange for payment for a specific period. Typically, the lessee is responsible for lease payments, maintenance, and operational costs during the lease term.
Lessor and Lessee: Key Differences
Ownership: The lessor owns the asset; the lessee uses it without ownership. However, the lessor may grant permission to the lessee to modify or change the property to suit his needs. The lessee is responsible for the condition of the property during the lease period.
Payments: The lessee makes a regular payment of rent to the lessor as per the agreement and the lessor receives lease payments;
Maintenance: Usually, lessors are primarily responsible for property maintenance including payment of property tax; while lessees typically maintain day-to-day upkeep and minor repairs. This includes tasks such as keeping the property clean, replacing light bulbs, and maintaining appliances provided by the landlord.
Risk Bearing: Lessors being the owners of the assets, bear the risk of asset depreciation; lessees don’t bear ownership risks but are responsible for the asset’s upkeep.
Contractual Role: The relationship between lessor and lessee is fundamental in various sectors, enabling access to property, equipment, and vehicles without the financial burden of ownership.
Termination Rights: When both the lessor and lessee mutually agree to end the contract. On the expiry of a notice which expressly conveys the intention to terminate the vacancy, such notice must be unconditional through forfeiture which legally allows a lessor to re-enter and reclaim his property. Usually, a lease agreement includes a termination clause under specific conditions; lessees must adhere to the lease terms to avoid termination.
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