The lease is an agreement between two parties in which one party allows the other party to use and control the asset for a defined period, without actually buying it. It is not exactly same as renting, but a form of it. Renting implies a short-term agreement between the tenant and landlord, whereby the tenant pays rent for the use of asset like land, building, car etc. owned by the landlord.
While in a rent agreement, the landlord can alter the terms of the contract, in a lease agreement, the terms of the contract cannot be altered until the contract ceases to exist. The line of demarcation amidst these two terms is very thin and blurred causing people to get confused between these two terms. Here, in this article, we have explained the significant differences between lease and rent.
Content: Lease Vs Rent
|Basis for Comparison||Lease||Rent|
|Meaning||The contract where one party permits the right to use the asset belongs to him to the other party for a certain period, is known as Leasing.||Renting is to let, the other party use your asset for a limited period and fixed consideration.|
|Accounting Standard||AS - 19||No specific Accounting Standard|
|Duration||Long Term||Short Term|
|Parties||Lessor and Lessee||Landlord and Tenant|
|Repairs and Maintenance||Depends upon the type of lease||Landlord|
|Modifications||The terms of the contract cannot be modified until it ceases to exist.||The terms of the contract can be modified by the landlord.|
|Offer to buy||At the end of the lease term, the lessee gets an offer to buy the leased asset by paying a residual amount.||No such offer.|
Definition of Lease
The lease has been defined as a contractual agreement between two parties, the lessor and the lessee whereby the lessor buys the asset and grants the lessee, the right to use the asset over a specified period, against periodical lease rentals. Lease rentals work as a consideration for the use of the asset that belongs to another party. The agreement in which the terms and conditions of the lease are defined is known as Lease Deed. The different types of lease are given as under:
- Finance Lease
- Operating Lease
- Sale and Lease Back
- Direct Lease
- Open-ended lease
- Close end lease
- Single investor lease
- Leveraged lease
- Domestic Lease
- International Lease
The leasing of land, building and livestock has been very common since early centuries. Although, the concept of leasing industrial equipment has emerged recently.
Definition of Rent
Letting the property at rent, to another person for a short term is known as Renting. The term of the rent goes on extending, month to month until the parties mutually decide to end up the agreement. Usually, the term of the rent is less than a year. Rental Agreement is an agreement in which the conditions of rent are defined. The agreement may either be oral or written.
Landlord and Tenant are the two parties to renting. The landlord has the right to raise the rent or modify the terms of the agreement, by giving prior notice to the tenant, in written form. Such an arrangement is appropriate for the tenant when the asset is required for a limited period only as the renting cost is high. So, the company can hire the asset on rent only when it is required.
Key Differences Between Lease and Rent
The paramount differences between lease and rent are mentioned in the given below points:
- Leasing is defined as a contract between lessor and lessee whereby the lessor buys the asset and lets the lessee use the asset for a particular period. Renting is to allow the other party to occupy or use the asset for a short time, in return for a fixed payment.
- Accounting Standard – 19 deals with leasing whereas there is no specific standard issued for renting.
- The time duration for leasing is long, whereas rent is for the short term.
- There are two parties in a lease agreement, i.e. lessor and lessee. Conversely, the landlord and tenant are the parties in case of renting.
- The lessee pays lease rentals to the lessor while the tenant pays rent to the landlord.
- The expenses for repairs and maintenance is borne by the lessee when there is a finance lease, but in the case of operating lease, such expenses are borne by the lessor. On the other hand, the landlord bears the cost of repairs and maintenance of the asset.
- The terms and conditions of the lease cannot be changed until it ends. As opposed to renting, the landlord can change the terms and conditions of the rental agreement but before giving prior notice to the tenant.
- The rental agreement is renewed automatically, but this is not so, in the case of a lease.
- At the end of the lease, the lessee gets the option to buy the asset at a residual price. However, this option is not available in the case of rent.
The choice between leasing and renting is very difficult, but the company can decide it by analysing the requirement of the asset. If the asset is required by the company throughout the year and so on, then it would be better to go for lease. However, if there is no such requirement, then the company may opt for renting.