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What is a lease?

Author:
Harold Averkamp, CPA, MBA

Definition of a Lease

Typically, a lease is a written agreement between an owner of property (land, building, equipment, vehicle, etc.) and a person or business that will use the property for a stated period of time in exchange for a specified series of payments.

The owner of the property is known as the lessor and the person using the property is the lessee.

Some leases are for short periods of time with no intention of transferring ownership of the asset in exchange for the rent payments. Other leases may be for longer periods with the ownership of the asset transferring to the lessee for a small additional payment.

Examples of Leases

A person or business might lease a suite in a large building for a one-year period. The lease agreement states that the lessee will pay the lessor $1,200 per month. Clearly, the lessor (property owner) is not agreeing to transfer ownership of the unit to the lessee (tenant) at the end of the one-year lease.

Another lease might involve a business leasing a forklift from a forklift dealer. This lease states that it is noncancelable and requires 60 monthly payments of $600 per month. After the 60th monthly payment, the business (lessee) may take ownership of the forklift truck by paying the forklift dealer (lessor) an additional $500.

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About the Author

Harold Averkamp

For the past 52 years, Harold Averkamp (CPA, MBA) has
worked as an accounting supervisor, manager, consultant, university instructor, and innovator in teaching accounting online. He is the sole author of all the materials on AccountingCoach.com.

Learn More About Harold

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