Lessee

What is a lessee?

When signing a lease agreement, there are two main parties: the lessor and the lessee. The “lessee” refers to the person paying for the temporary use of a property, car, or other asset. The lessee agrees to pay the lessor a certain amount every month for a designated period (usually six months or more) and leave the property or equipment in the same condition (minus regular wear and tear). 

In a residential property lease, the lessee agrees to the lease payments set by the owner (landlord) and agrees to maintain the property for the duration of the lease. If the property is in a homeowners association (HOA), the lessee agrees to follow the applicable rules. When the lease is up, the lessee has to restore the property to its original condition as much as possible, return the keys to the lessor, and vacate the property.

A leased vehicle requires the lessee to make regular payments to the dealership or lender in exchange for using the vehicle. The lessee pays for gas and maintenance just as they would their own vehicle. There may be mileage restrictions to avoid excessive wear and tear. When the lease is up, the lessee typically has the option to return the vehicle or purchase it.

Learn more about the roles and responsibilities of lessees and lessors.

FAQs 

What’s the difference between a lessor and a lessee?

In a lease agreement, a lessor is the person who owns the property, vehicle, or equipment to be leased. The lessee is the person who leases the asset for a given period of time, usually over six months. 

What is a lessee responsible for?

The lessee’s responsibilities are set by the lessor. They usually include regular, on-time payments, general maintenance, and returning the leased assets in their original condition (minus standard wear and tear). In direct financing leases, the lessee generally takes on the financial obligations for necessary repairs and maintenance and has the option to purchase at the end of the lease term. 

What is the difference between renting and leasing?

While the two terms are often used interchangeably, rental agreements are typically short-term (under six months), and lease agreements are typically long-term. You can rent shoes at the bowling alley or rent a tool from the home improvement store for the weekend. You lease cars, residential properties, commercial properties, etc.   

What's the difference between a finance lease and an operating lease?

The main difference between these two lease agreements is the lessee's intent to own the asset. For example, if the lessee just needs to lease some equipment for a home improvement project and plans to return it with no intent to take ownership, that's an operating lease. If the lessee leases equipment for their business with the intent to purchase at the end of the lease period, that is a finance lease. The lessor can treat it as a sales-type lease or a direct financing lease.