A lease is a legal document in which all rights, responsibilities, use, costs and sometimes future ownership of a property or other item are set up and agreed to when a lessor (the seller or property owner) conveys interest to a lessee (the person who is leasing). Leases are written for a certain period of time, with the plan to exit the lease spelled out.
Importance of Leases
A lease is a legal document containing language that will spell out in certain terms all responsibilities of the lessor. The owner of the property may have certain restrictions as to how it may be used. It will list all costs involved to the lessee and all responsibilities of the lessee (such as maintenance, insurance, repair and any other requirement the owner deems necessary to insure that the property or item is kept in satisfactory working condition), from the start of the lease until it ends.
Uses of Leases
Leases are used for the rental (either short- or long-term) of homes and apartment dwellings, as well as automobiles and other mechanical equipment. The purpose of the lease is to spell out the lease costs, upfront deposits, maintenance, repair, insurance coverage, use and how and when the lease will end. Leases spell out any future ownership of the property when the lease ends, which could include a sale price in case the lessee is buying the property or item at the end of the lease. They also will spell out legal ramifications in the event the lessor or owner of the item or property does not keep promises as agreed, and will spell out the coverage of court and legal costs in the event that legal issues arise.
Leases on Real Estate
Leases are used in the rental of residential properties (including apartments) to spell out the length of time a tenant will reside in the home and what happens at the end of the lease period. A lease will spell out dates that rental fees are due, costs, late charges and upfront deposits. It will also spell out the tenant's responsibility of maintenance and upkeep (small repairs, grass cutting, etc.) and the owner's responsibility (major repairs such as repair of heat and air systems, appliances and any items not required to be cared for by the tenant). The lease will discuss what restrictions are placed on the property. It may state that no drug use or similar illegal activity is to go on in the home or the lease will end and the lessee will face eviction. The lease may cover the issue of pets and the number of people in the household, as well as the number of people who may visit from time to time.
Leases are used for tenants who rent commercial properties. Space may be rented by the square foot, set as a dollar amount per square foot of space. The tenant may be offered one of three different types of lease: The first is a gross lease, which mandates a set amount of rent to be paid each month. The owner agrees to pay taxes, insurance and all maintenance on the building. The second type of lease is a net lease, which requires the tenant pay an amount for the use of the space (rent) plus some of the maintenance, insurance and other costs involved. The third type of lease is a triple net lease. This is common for freestanding buildings, and has the tenant paying rent plus all costs involved with the building including insurance and taxes.
Office Equipment leases
Leasing office or business equipment has its advantages. When a new entrepreneur sets up a business, cash flow is usually low. Leasing is an option to obtain needed equipment but avoid going into debt with a loan. The business owner will spend a smaller amount for deposits, and have only a monthly payment. In the long run, equipment costs more when leased, but leasing has its advantages. An example of this would be with computers. Computer technology has changed so much and so often that computers become obsolete very quickly. A leased computer can offer the advantage of upgrades as technology changes, guaranteed for no extra cost in the lease. There is usually a clause to buy out the equipment at the end of the lease. Leasing can become a necessity if you find that you cannot get a loan to buy equipment, and leasing or buying with cash are your only options.
Leases on Automobiles
As the cost of new automobiles, vans, trucks and SUVs have increased, so has the cost of the homes, food and energy it takes to live. Consumers are always looking for ways to drive safe and dependable cars and keep all of the necessary expenses within their budget. Automobile leasing can do that by keeping the lease payment lower than an actual payment would be, because all you are paying for is the depreciation on the vehicle, taxes and rent. Automobile leases are considered to be closed-end leases because at the end of the lease, you turn in the vehicle and walk away from the lease. You will be limited to a certain mileage per year (typically 12,000 to 15,000 miles), or you can negotiate for higher mileage for a higher monthly payment (which pays for increased depreciation of the vehicle's quality). You have the option to buy the vehicle at the end of the lease period for a depreciated price, or to select another new car and begin another lease period. Roughly 20 to 25 percent of all new cars, trucks and SUVs are leased, but 75 percent of high-end luxury cars are leased vehicles.
Leasing cars, equipment, homes or anything else gives the user the use of the item or property without a long-term obligation to purchase. It can save the lessee money on monthly payments while giving him the opportunity to try out something for a time. The language in a lease should give both the lessor and lessee an exit to break the lease in the event that leasing the item or home no longer serves its purpose, or if either party can no longer perform as initially agreed.
- Commercial Leases
- Leasing Equipment
- Auto Leasing
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- Merriam-Webster. "Lease." Accessed April 12, 2020.
- AARP. "To Buy or Not To Buy." Accessed April 12, 2020.
- Consumer Financial Protection Bureau. "What is a Manufacturer Suggested Retail Price (MSRP)?" Accessed April 12, 2020.
- LeaseGuide.com. "Capitalized Cost – Cap Cost." Accessed April 12, 2020.
- Autotrader. "Leasing a Car: Can You Negotiate the Price?" Accessed April 12, 2020.
- Edmunds. "The 'Residual Value' of Leasing." Accessed April 12, 2020.
- Federal Reserve. "Keys to Vehicle Leasing: Future Value." Accessed April 12, 2020.
- LeaseGuide.com. "Money Factor—Explained." Accessed April 12, 2020.
- Federal Trade Commission. "Financing or Leasing a Car." April 12, 2020.
- Federal Reserve. "Keys to Vehicle Leasing: End-of-Lease Costs: Closed-End Leases." Accessed April 12, 2020.
Joey Campbell spent eight years in real estates sales and property management. She has been active in residential and commercial mortgage for the past 23 years in the Southeastern U.S. Campbell has attended hundreds of seminars, and has written and conducted workshops on subjects such as credit, debt excelleration and prequalifying for residential mortgages.