What is a lessee?

The contract sets the deal, but the pattern is consistent. The lessee pays the rentals and any agreed outgoings on time, uses the asset only for the permitted purpose, keeps it maintained and repaired to the standard the contract sets, and carries the insurance the contract requires. Assigning or subletting usually needs the lessor's consent.

In return, the lessee has the right to quiet enjoyment, meaning use of the asset without unreasonable interference from the lessor, and to have the agreed terms left alone. In an equipment lease, failing to maintain or insure the machine is a breach, and a breach can lead to repossession. In a commercial property lease the lessee usually covers the tenantable condition and utilities, while structural repairs stay with the lessor.

The lessee takes the right to use. The lessor grants it and normally keeps legal ownership. In residential settings the two are usually called tenant and landlord, and tenancy law uses those words, but commercial and finance documents almost always say lessee and lessor. The role is the same either way: one party pays to use something the other owns.

The label matters for process rather than substance. Residential disputes run through state tenancy authorities and tribunals, with bonds lodged and released under the state scheme. Commercial and equipment disputes follow the contract, so whether you end up in mediation, arbitration or court depends on the lease wording and the amount at stake.

Under AASB 16, a lessee recognises a right-of-use asset and a matching lease liability at commencement. The liability is the present value of the future lease payments, and the right-of-use asset is depreciated over the lease term or the asset's useful life. Short-term leases of twelve months or less, and low-value leases, can be expensed as incurred instead.

Tax does not automatically follow the accounts. Lease payments for business use are generally deductible as an operating expense, and finance leases are treated differently again. Where the lessor is registered for GST, the payments include GST, and a GST-registered lessee can generally claim input tax credits for business use. Duty on leases differs by state and territory and can arise on a lease premium, so check the position where you are. Vehicle registration duty is a separate tax that applies when a financed vehicle is registered. Check the ATO's guidance and speak with your accountant.