Business

Difference between Lessor and Lessee

Main Difference

The main difference between lessor and lessee is that lessor is the person who owns the immovable property or makes the property available to the lessee whereas lessee is the person who occupies an immovable property and pays the lease for it.

Advertisements

Comparison Chart

Basis of Distinction Lessor Lessee
Definition Lessor is the person who grants a lease. He is a person who is the owner of property or asset Lessee is the person who takes the temporary possession of property against a fixed one-time payment or periodic payments
Consideration The consideration of lessor is to get a sum of payment as compensation or rent The consideration of lessee is to get the temporary use and enjoyment of a thing either in whole or part
Legal Status Legal Owner No owner status
Ownership Lessor always remains the real owner Get temporary ownership up to lease term
Possession No possession Possession rests with lessee
Legal obligations Less obligations More obligations regarding damages
Government Liabilities Lessor is liable to pay the tax and other charges against the property No obligation
Repair and Maintenance Full responsibility Partial Responsibility
Utility Charges Lessor is not responsible if it is already stated in lease agreement Lessee is responsible for payment of monthly utility charges

Lessor

Lessor is one of the main participants in two participants of the leasing contract who owns or has the possession of the property and provides it as leasing to the lessee for a specified period. The lessor can be both individual and a legal entity. In most of the cases, seller and lessor of the property can be one and the same person. When the lessor leases an immovable property, he has the limited rights over the assets leased. The lessor will have limited permission to enter for specific repair and maintenance purposes only. However, he has right to finish the lease contract in case he founds there is any illegal use of the property or intentional damages caused. Normally tax on property and other legal charges are paid by the lessor untilled agreed in advance that the lessee would settle these. However, in most of the cases, lessee is responsible for payment of utility charges if lease amount doesn’t cover the utility charged in advance.

Advertisements

Lessee

Lessee is one of the main participants in two participants of the leasing contract who acquires the immovable property or asset and makes periodic or monthly payments in return. The lease agreement on the part of the lessee shows the ownership of possession of property; however, he can’t be still treated as the owner as ownership rests with the lessor. Normally lessee can’t be held responsible for the payment of government charges and taxes until prescribed in advance. In the same manner, he is not bound for repair and maintenance as well. In most of the cases, utility charges are always paid by the lessee until agreed in advance that he will not be liable to pay all these if lease agreement already covered these charges.

Key Differences

  • The lessor acquires the property, not for his own use and lessee acquires that property on lease for his own use.
  • Original transfers of the property rest with the lessor, however, lessee get the ownership for temporary use for an agreed payment.
  • Ownership rests with lessor while possession rests with the lessee.
  • In the case of bankruptcy of the lessee, the lessor has the right to get payments first while lessee has no concern with the bankruptcy of the lessor.
  • Lesser is the owner of the property and has no restriction on the usage of his property. The permission is only required if the lease has been made and property in under-lessee On the other hand, the lessee has restrictive control over the property.
  • Lessee needs to provide insurance for loss while lessor is liable to make it sure he is the owner or making lease agreement on behalf of principal.
  • The consideration of lessor is to get a sum of payment as compensation or rent. The consideration of lessee is to get the temporary use and enjoyment of a thing either in whole or
  • It is lessee that can choose to void the contract in case of destruction of property due to fire, flood, tempest or any other unknown event.
  • Lessor can take the property from someone and can further lease it, but the lessee is not allowed to permit another to use the property for a purpose other than that for which it was leased.
  • According to IAS 17 in term of financial leases, “in the financial statements of lessees: at commencement of the lease term, finance leases should be recorded as an asset and a liability at the lower of the fair value of the asset and the present value of the minimum lease payments (discounted at the interest rate implicit in the lease, if practicable, or else at the entity’s incremental borrowing rate).” “in the financial statements of lessors: at commencement of the lease term, the lessor should record a finance lease in the balance sheet as a receivable, at an amount equal to the net investment in the lease.”

Video Explanation

Advertisements