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Definition of leasing

A lease is a contractual agreement between the lessor (owner) and the lessee (second party) for a specified asset, which can be property, a house or apartment, business or office equipment, an automobile or even a horse. The lessee receives the right to total ownership for a spelt out period of time and conditions in return for payments. Do not confuse a lease with a rental, although these words are often interchanged. A rental is for a short period of time, such as a month, where, in this case, the agreement is renewed or the terms are changed monthly.


Leases give added protection to both the owner and second party, or lessor and lessee. Once a lessee signs the lease, he or she is financially obligated to make the payments for the designated time. However, during the time of the lease the owner cannot raise the fee or make any other rental term changes nor seize or evict the tenants. The lessor not only does not have to worry about a sudden loss of payment, but will most likely have a more stable person living in the property than under a renting arrangement.


Leases have benefits to the lessee as well. For example, when a business leases equipment, it doesn't have to take the full amount of capital out of the bank for purchase. All except the monthly fee can stay in the bank account or be used for other purposes such as inventory. There are also potential tax benefits that can be gained for operating expenses. Some companies that lease equipment include other costs in the lease as well, such as installation, service and shipping. At the end of the lease, it is possible to keep the equipment, upgrade or lease it at significant savings.

Auto Lease

When you sign a lease for a car, you are agreeing that each month you will make a payment. You will also purchase the necessary automobile insurance, pay the federal, state and city taxes, keep the licensing fee up date and maintain the car in good working condition. You also need to keep the car for the contracted amount of time, which can be two, three or four years. When the lease is over, you must return the automobile to the lessor with only the typical wear and tear. If there is any major damage, you will be liable for it as well as any mileage above and beyond the agreed amount. You can return the car or buy it for a predesignated price and then keep it or sell it on your own.

Computer Lease

You may want a brand new computer but not have the money on hand to purchase a new one. Or, you may feel that computers become old very quickly an it is better to lease. Just like leasing a car or a business equipment, you need to make a long-term commitment. This is not renting the computer, where you can return it after a month or two. You will need to sign the leasing agreement for the year or two and most likely you'll be penalised if you return it early.

Lease to Buy

Due to evolving changes in the financial system, at times it is difficult for homeowners to sell their property. They may offer a potential buyer a "lease to buy" arrangement. Normally the owner of the property agrees to offer the property for sale after an agreed-upon period of time, such as one to three years, and at a preset price. The lessee has to pay an upfront option or fee, which is usually not refundable. Part of the monthly rent may be put toward the down payment to buy the home.