Lease

A lease is a contractual arrangement in which the owner of an asset (the lessor) permits another party (the lessee) to use that asset for an agreed-upon period in return for periodic payments. The agreement generally outlines details such as how long the lease will last, the amount and schedule of payments, each party’s maintenance obligations, provisions for renewal, and the terms under which the lease may be terminated. Although the lessee receives the right to use the asset, legal ownership continues to rest with the lessor.

Common forms of leases include:

1. Operating lease: Typically shorter in duration and often cancellable, with the lessor retaining most ownership-related risks.
2. Finance (capital) lease: Usually long-term and non-cancellable, where the majority of economic benefits and risks shift to the lessee.
3. Sale-and-leaseback: A transaction in which an owner sells an asset to another party and then leases it back for continued use.

Illustration:

For example, a company may agree to rent office premises for ₹1,00,000 per month under a five-year lease. The business gains the right to occupy the premises, but the property continues to belong to the landlord.