Leasing assets like real estate, vehicles, equipment, and machinery is a popular option for businesses to obtain access without major capital outlays. But how exactly does leasing work and what is the role of the lessor?
In this post, we’ll unpack the definition of a lessor along with their critical responsibilities when entering into lease contracts.
Table of Contents
Defining the Lessor
The lessor is the owner of the asset being leased and the party granting usage rights to the lessee through a lease agreement. The lessor retains legal title to the asset and has ownership rights over it.
By leasing the asset instead of selling it outright, the lessor is able to recover a substantial portion of the asset’s value over the lease term through regular rental payments. The lease revenue also provides a return on investment for the lessor.
Key Lessor Responsibilities
The lessor takes on several core responsibilities in lease agreements:
Maintaining the asset – The lessor is usually responsible for repairs, maintenance, and services needed to upkeep the asset’s condition.
Enforcing lease terms – The lessor ensures the lessee complies with all provisions in the lease contract. They can repossess the asset if terms are violated.
Handling taxes and fees – The lessor pays any taxes and licensing fees associated with legal ownership of the leased asset.
Deciding end-of-term options – At the end of the lease, the lessor decides whether to renew the lease, have the asset returned, or offer the lessee a chance to purchase it.
Mitigating risks – The lessor must ensure adequate insurance is in place to protect their asset and manage risks.
In essence, the lessor retains control over the asset’s usage and oversees administrative matters while granting temporary usage rights to the lessee in exchange for rental income.
By clearly defining the lessor’s roles and motivations within a lease contract, both parties can craft agreements that effectively serve their respective interests.