Lease is a term everyone should be familiar with. Bankrate explains what it is.

What is a lease?

A lease is a contract in which one party, the lessor, gives the right of occupancy or use of property, such as a car, apartment or commercial building, to another party, known as the tenant or lessee, for a set period of time. The lessee pays a fixed amount regularly in return for the right to use.

Deeper definition

A lease is a written agreement between two parties that specifies the terms and conditions of the lease, as well as the leased property. The property owner or vehicle dealership is known as the lessor, and the person or company renting the property or vehicle is known as the lessee. A business lease for a building or equipment is similar to a personal lease for an apartment.

The purpose of a lease is to protect both the lessee and the lessor. It lets them know their obligations and responsibilities. A lease contract typically specifies the length of the agreement, the amount of monthly or yearly rental payment, the procedures for collecting the payment, and both parties’ obligations. If the lessor or lessee breaks any term defined in the lease, the lease is no longer binding, and the party at fault may be subject to legal action for breach of contract.

Lease example

Take real estate rental as an example. Jack owns a mansion in California. However, he does not live in the house, so he decides to lease it. Jack continues to be the landlord of the house, but finds someone who agrees to pay him $10,000 a month to live there for two years. The lease contract specifies the exact dates the renter can live in the house, what changes or improvements the renter is allowed to make to the property, and what the consequences are if the renter damages the property. The lease also states what Jack’s responsibilities are in maintaining the property.

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