How a Lessee Works

A lessee is a person or business that rents property, such as an apartment or car, from another person or company that owns the property. The lessee signs a document called a lease that outlines the terms of the rental agreement. If you’ve ever rented a home, leased a vehicle, or borrowed someone else's property for your use, you have likely been a lessee.

Lessees sign an agreement with the owner—known as the lessor—that lays out the terms of the agreement to rent the property. That typically includes the cost to lease the property, how the payments will be made, how often the lessor will be paid, and the length of time the lessee will have access to the property (a start and end date).

When you sign a lease with another party it becomes legally binding—you’ll need to keep whatever terms you’ve agreed to in the lease. In addition to costs and term lengths, a lease contract often outlines details for maintaining a property and the consequences for not following the terms of a lease. If a lessee does not abide by the terms in a lease, the lessor may have grounds for breaking it or imposing penalties.

• Alternate names: Tenant, renter

Examples of Lessees

Let's say you need a new apartment. After touring apartments, you apply for one you really like and are approved. You provide all the necessary information and documents and then you sign the lease agreement. You're officially a lessee and are bound to the terms of the lease.

Another example is if a company rented space from another company. Let's say Company ABC makes bikes and needs a warehouse to store the products before they ship. Company ABC signs a lease for warehouse space from Company XYZ. In this example, Company ABC is the lessee of that warehouse and Company XYZ who owns the warehouse is the lessor.

The lease agreement outlines the rights and responsibilities of the lessor and lessee.1 It details the consequences if either party does not comply with the terms and conditions. That often includes penalties and fees for the lessee, or the possibility of eviction or repossession if, say, payments are not made. The lease is then reviewed and then signed by both parties, perhaps with the help of an attorney.

Commercial leases, which are for property used for commercial instead of residential purposes, can be more complicated than personal property leases. They may include longer terms, rent payments tied to profit, or other factors rather than a set rental cost. 

You have likely been a lessee if you’ve rented an apartment or home, or leased a car from a dealership.

Lessee vs. Lessor

Lessees and lessors are the two main parties in a lease agreement. Essentially, the main difference between lessors and lessees is ownership of property. The lessor maintains legal ownership of the property, whether it is a car from a car dealership or a condo for which they pay a mortgage.

The lessee may occupy or physically possess the property during the lease term, but they never own it. Once the lease has ended, the lessee is obligated to give back the property that they’ve rented to the lessor. They may be forced to vacate the property if they do not meet the terms of the lease.

Although lessors have legal ownership of their property, they cannot enter or access it whenever they’d like. Tenant laws require that a landlord give reasonable notice to a lessee before entering a property.2

How Long Are You a Lessee For?

You may be a lessee for 12 months if you agree and sign the lease for an apartment in which you will live for the next year. You are responsible for paying rent every month. You could be a lessee for two years if the lease for the car or apartment is 24 months. The length of time that you are a lessee depends on the terms of the lease you sign.

During that time, you are also required to meet the terms of the lease. A lease may give you the responsibility of maintaining the lawn and avoiding damage to the property. In the case of rental properties, it can hold the lessor accountable for keeping the heat or air conditioning working, repairing appliances, providing running water, and providing adequate weatherproofing.

When the lease is up, you may have the chance to be a lessee on a month-to-month schedule. Additionally, many leases call for a security deposit that is held by the lessor to cover damages or failure to pay rent. If you as the lessee do not damage any property and you pay rent on time every month, you may get the security deposit back after the lease ends.3

Can a Lessee Also be a Lessor?

Yes. You could own a house and rent it out to another lessee while you then move to an apartment and lease it from another landlord.

There's also something known as a sandwich lease. This is when a lessee rents an apartment and then subleases it to another person. The lessee acts as a lessor of sorts to the third party who is occupying the space or using the property.4

This may happen if a lessee needs to travel for work for a month or something. The lessee could also make additional money this way by charging the person subleasing their property more than they pay per month in rent.

Frequently Asked Questions (FAQs)