A lessee is an individual or organization that enters into a contractual agreement known as a lease with another party, referred to as the lessor, to use an asset that the lessor owns for a specified period and under certain terms and conditions. The lessee does not gain ownership of the asset but is granted the right to use it in exchange for periodic payments to the lessor, commonly referred to as lease payments. These assets can include real estate, vehicles, machinery, or equipment.
For example, if a business needs office space but chooses not to purchase property outright, it might enter into a lease agreement with a property owner and become the lessee. Under the lease, the lessee must adhere to certain terms, such as maintaining the property and paying rent on time. The lessor remains the legal owner of the office space. Lease accounting standards, such as IFRS 16 or ASC 842, guide how lessees should report lease obligations in their financial statements, balancing transparency with comprehensiveness.
Becoming a lessee allows entities or individuals to utilize assets and gain operational benefits without requiring the capital outlay to purchase those assets upfront. It's a viable alternative to ownership, especially for assets that depreciate quickly or are only needed temporarily.