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Lessee

A lessee is the party that receives the right to use an asset, such as property or equipment, under a lease agreement in exchange for making agreed payments to the owner.

What Is a Lessee?

A lessee is the person or company that gets the use of an asset under a lease agreement. The owner of the asset, who grants that right, is called the lessor. In return for using the asset over an agreed period, the lessee makes payments, usually at regular intervals, as set out in the contract. Assets leased this way include office space, vehicles, machinery, and computer equipment. The lessee does not own the asset outright, so ownership typically returns to the lessor when the lease ends, unless the contract says otherwise.

How Lease Accounting Treats a Lessee

Accounting rules have changed how lessees report leases. Under the current US standard (ASC 842) and the international standard (IFRS 16), most leases must be shown on the lessee's balance sheet. The lessee records a right-of-use asset representing its right to use the item, and a lease liability representing its obligation to make payments. Under IFRS 16, nearly all leases are treated this way. Under ASC 842, leases are classified as either operating or finance leases, and their effect on the income statement differs between the two. Short-term leases, generally those of twelve months or less, may be exempt from balance sheet recognition under both standards.

Why It Matters to Investors

Lease obligations are a form of debt-like commitment. Before the rule changes, many lease payments appeared only in financial statement footnotes, so a lessee's reported debt could look smaller than its true financial commitments. Recognizing lease liabilities on the balance sheet makes these obligations more visible and can affect ratios such as debt-to-equity ratio and return on assets. Investors reading a company's financial statements may therefore want to check how leases are reported, particularly for companies that rely heavily on leased stores, aircraft, or equipment.

Lessee Responsibilities

Beyond payments, the lease contract sets out duties such as maintaining the asset, insuring it, and following use restrictions. Lessees who break these terms may face penalties or early termination charges, depending on the agreement.

Updated October 20, 2026. For general education only; not financial, tax or legal advice.

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Related Terms

Lease

A lease is a contract in which an owner, the lessor, grants another party, the lessee, the right to use property or an asset for a set period in exchange for payments.

Lessor

A lessor is the party that owns an asset and grants another party, the lessee, the right to use it in exchange for periodic payments under a lease agreement.

Balance Sheet

A balance sheet is a financial statement that lists a company's assets, liabilities, and shareholders' equity at a specific point in time, showing what it owns and owes.

Debt-to-Equity Ratio (D/E)

The debt-to-equity ratio compares a company's total liabilities to its shareholders' equity, showing how much of its funding comes from borrowing versus from owners' capital.

Return on Assets (ROA)

Return on assets is a profitability ratio that shows how much net income a company generates for each dollar of its total assets.

Operating Lease

An operating lease is a rental agreement that lets a business use an asset, such as equipment or property, for a set period without transferring ownership of it to the business.