Lessor vs Lessee: The Fundamentals of Lease Agreements

The relationship between lessor vs lessee is a common one, but many people might not understand all of the details of the situation. At its core, a lessor is someone who owns a property, object, trademark, business, or any other piece of real or intellectual property. The lessee pays the lessor for the right to use said property.


A contract between a lessor and lessee is called a lease, and this document lays out the details and terms of the agreement in full. In most cases, the terms of a lease are dictated -- at least in part -- by large amounts of legal precedent and obligations which have been established by a court of law.

Of course, this means that it's impossible to cover every single detail of the agreement between lessor and lessee because different jurisdictions have different rules.
Investorguide.com will do out best to cover the basics which apply in most cases.

The Lessor Owns The Property

The single fact that makes someone a lessor is that they are the legal owner of the property being leased. They have the sole claim to ownership of the property, which is typically free of liens or other legal obligations, and they are obligated to follow the appropriate laws when drawing up a lease agreement.

Benefits For The Lessor

The key benefit for the lessor in nearly every case is money. Whether the payment is made monthly, yearly, or at some other agreed upon time period is up to the individual details of the lease. Lessees who don't make these payments on time may find themselves in breach of the lease agreement, and forced to give up using the leased property and potentially pay fines and penalties.

Common Obligations To The Lessee

In most cases, the lessor has a few obligations to the lessee. The lessor should ensure that the property being leased is free from damage -- or any damage to the property has been disclosed beforehand -- and they are forbidden from placing undue obligations on the lessee.

The Lessee Pays To Use The Property

Anyone who has paid the owner of a property in order to make use of said property is a lessee. Whether you're renting a home, a boat, or the letterhead for a business, the agreement is essentially the same. Lessees are able to enjoy the full benefits that come from the use of the lessor's property.

Benefits For The Lessee

The obvious benefit for the lessee is the use of the lessor's property for the full term of the lease agreement. Depending on the agreement, they are able to use a car, watch a television, live in a house or apartment, or just generally make unencumbered use of the property that they've paid for. In return for paying the lessor, the lessee does not actually own the property and is typically under no obligation to make tax or lien payments for said property.

Common Obligations To The Lessor

The most typical obligation that a lessee has to a lessor is to make payments on a schedule that has been negotiated in the lease agreement. They are also typically responsible for a reasonable amount of maintenance and upkeep, although this varies widely depending on jurisdiction. The lessee is also obligated to return the property at the end of the lease agreement in the state that said property was received at the beginning of the agreement. The lessee is obligated to follow all terms and conditions of the lease to the letter, or else the lease is said to be ‘broken' and the property is returned to the lessor.

Keep In Mind

The lease agreement doesn't need to cover real property like apartments, cars, and homes. Although those are the most common types of leases, an agreement can cover just about anything. Everything from textbooks, camping equipment, caskets, and even pets have been legally leased at one point or another. Whether you're the lessee or the lessor, and whatever you find yourself leasing, make sure to educate yourself on the appropriate federal, state, and local laws.
By Aaron Phillips
Aaron Phillips is a financial researcher and journalist based out of Michigan. He regularly writes the IG Daily and IG Weekly columns.

Copyrighted 2016. Content published with author's permission.

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