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What is a Lease?

Michael Pollick
Michael Pollick
Michael Pollick
Michael Pollick

A lease is a legally enforceable contract which defines the relationship between an owner, the lessor, and a renter, the lessee. A typical lease spells out all of the terms involved in a land or merchandise rental agreement, including the length of time a lessee may use it and what condition it must be in upon return to the lessor. The amount of payments and any financial penalties for late payments may also be included in a contract.

Most consumers encounter a lease when renting housing or leasing a car. It can be very short-term (a few weeks or months), or it can be extended for a number of years. Many small businesses and retail stores have agreements for 10 years or more, and renewal may just be a formality. Apartment renters, however, rarely sign a contract extending past one year of occupancy. Those who lease vehicles usually sign two-year agreements as opposed to five-year financing plans for buyers.

A car may be leased.
A car may be leased.

An agreement protects both the lessor and the lessee. The lessor knows that a legally binding contract obligates the renter to make regular payments throughout the life of the lease. The lessee knows that he or she has full rights to the property without fear of sudden seizure or eviction. A lease also guarantees that the original rental terms will not change until the contract has expired.

A condo lease agreement.
A condo lease agreement.

A lease arrangement does not always guarantee smooth sailing between landlord and tenant, however. Unlike a mortgage between a bank and homeowner, the contract between landlord and tenant can contain a number of restrictions. Renters and leasers are not owners, therefore the property is always subject to scrutiny by the landlord and/or titled owner. If certain conditions are violated, such as an unauthorized pet or a sanitation problem, the lessor can decide to terminate the agreement.

Businesses commonly have a 10 year lease agreement.
Businesses commonly have a 10 year lease agreement.

Another consideration is the length of the lease itself. Some renters sign longer leases in order to reduce monthly payments, only to encounter a more appealing housing situation long before the end of the agreement. A lease may allow lessees to legally break the terms if a new job is located 50 miles away or more, but in general the renter may have to honor the entire term. Some lessees may find someone willing to continue the rental obligation without a lease — a practice called subletting. Some landlords allow tenants to sublet, but it's not always a viable option.

The important thing to understand about a lease is that it is a binding legal agreement and you should be aware of all the conditions before signing.

Michael Pollick
Michael Pollick

A regular SmartCapitalMind contributor, Michael enjoys doing research in order to satisfy his wide-ranging curiosity about a variety of arcane topics. Before becoming a professional writer, Michael worked as an English tutor, poet, voice-over artist, and DJ.

Learn more...
Michael Pollick
Michael Pollick

A regular SmartCapitalMind contributor, Michael enjoys doing research in order to satisfy his wide-ranging curiosity about a variety of arcane topics. Before becoming a professional writer, Michael worked as an English tutor, poet, voice-over artist, and DJ.

Learn more...

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Discussion Comments

anon298979

Where a company is leasing equipment for a company, what leasing considerations must the company be mindful of first?

anon160902

After paying for a lease, say 50 thousand, do you get that back when the lease runs out?

anon110221

Most consumers encounter a lease when renting housing or leasing a car. A lease can be very short-term (a few weeks or months), or it can be extended for a number of years. Many small businesses and retail stores have lease agreements for 10 years or more, and renewal of the lease may just be a formality.

Apartment renters, however, rarely sign a lease extending past one year of occupancy. Those who lease vehicles usually sign two-year agreements as opposed to five-year financing plans for buyers.

A lease agreement protects both the lessor and the lessee. The lessor knows that a legally binding contract obligates the renter to make regular payments throughout the life of the lease. The lessee knows that he or she has full rights to the property without fear of sudden seizure or eviction. A lease also guarantees that the original rental terms will not change until the lease has expired.

A lease arrangement does not always guarantee smooth sailing between landlord and tenant, however. Unlike a mortgage between a bank and homeowner, the lease between landlord and tenant can contain a number of restrictions. Renters and leasers are not owners, therefore the property is always subject to scrutiny by the landlord and/or titled owner. If certain conditions of the lease are violated, such as an unauthorized pet or a sanitation problem, the lessor can decide to terminate the lease.

Another consideration is the length of the lease itself. Some renters sign longer leases in order to reduce monthly payments, only to encounter a more appealing housing situation long before the end of the lease. A lease may allow lessees to legally break the terms if a new job is located 50 miles away or more, but in general the renter may have to honor the entire lease. Some lessees may find someone willing to continue the rental obligation without a lease -- a practice called 'subletting'. Some landlords allow tenants under a lease to sublet, but it's not always a viable option.

anon63887

after the lease is up, when does the leasee return the possession of that property?

anon50199

Judging by the article above that just stated, if your lease runs out, you have the option to renew the lease, but because the property that you are leasing does not belong to you, instead is another person's, that does not give you ownership rights, regardless of whether you pay the house in full on just rental payments. So you can either renew the lease or terminate the agreement at the end of 25 years.

anon21984

Im buying a holiday flat the lease runs for 25 years and the flat is priced at £100,000 what happens when the lease runs out?

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    • A car may be leased.
      By: Robert Wilson
      A car may be leased.
    • A condo lease agreement.
      By: JohnKwan
      A condo lease agreement.
    • Businesses commonly have a 10 year lease agreement.
      By: pds209
      Businesses commonly have a 10 year lease agreement.
    • A typical lease spells out all of the terms involved in a rental agreement.
      By: andiafaith
      A typical lease spells out all of the terms involved in a rental agreement.