Written byA lessor is the party that grants a lease of property, goods or equipment to a lessee, keeping legal title while the lessee has possession and use.
Also known as: landlord, leasing company
Key points
- The lessor keeps legal title to the asset, while the lessee gets the right to possess and use it for the term.
- In equipment and vehicle finance the lessor may be a bank, a leasing company, a captive lessor or an independent lessor.
- "Lessor" is the formal contract word; "landlord" is the everyday term for a lessor of residential property.
- Rights include receiving lease payments and enforcing the lease; duties include quiet enjoyment, repairs and safety compliance.
- Where an equipment lease creates a security interest, registration on the PPSR protects the lessor's position.
Rights and responsibilities
A lessor's rights sit in the contract: receive the rent and other payments, enforce the terms covering use, assignment and repairs, and on a serious breach re-enter or forfeit the lease, subject to statutory notice and procedure. Those procedural steps matter, because skipping them can invalidate the action and expose the lessor to penalties.
The duties run the other way. Quiet enjoyment means not interfering unlawfully with the lessee's use. Repair obligations vary by lease type: residential tenancy law requires premises in a reasonable state of repair with fixtures meeting safety standards, while commercial leases negotiate it, the lessor usually covering structure and the tenant the fit-out. Safety rules, bond lodgement and insurance obligations are set by state legislation.
Types of lessor and where the term is used
A lessor can be an individual with one investment property, a company holding a portfolio or a fleet, a trustee holding title for beneficiaries, or an institution such as a bank, fund or leasing company. In equipment and vehicle finance the counterparty is usually one of that last group.
The context changes the rules. Residential leases run on tenancy legislation that leans towards tenant protection. Commercial leases are contract-driven, with repairs, fit-out and rent review all open to negotiation. Equipment and vehicle leases bring their own considerations, including security interests and PPSR registration.
Key clauses, and the tax side
The clauses that decide most disputes are rent and review, term and renewal with any break clause, assignment and subletting consent, repair allocation, access and entry notice, insurance and indemnity, default and remedy, and how a bond is held and returned. Precise drafting is what keeps those out of a tribunal.
Rent received is assessable income. Deductions typically include loan interest, repairs and maintenance as distinct from capital works, decline in value on new plant and fittings the lessor installs, noting that second-hand assets in a residential rental are generally excluded, and costs such as management fees, council rates, insurance and advertising. Residential rent is input taxed, so no GST is charged on the rent and no GST credits can be claimed on the expenses, while a lease of commercial premises is generally a taxable supply where the lessor is registered. Keep contracts, condition reports, tax invoices and receipts.
Not to be confused with
- Lessee
- the lessee is the party on the other side of the same lease, taking possession and use
- Captive lessor
- a captive lessor is a lessor owned by a manufacturer or dealer network to support its own sales
Frequently asked questions
Is a lessor always the owner?
Not always. The lessor is the party granting the lease and usually holds legal title, but title can sit with a trustee or a company, and in some arrangements a mortgagee with enforcement rights acts as lessor. Check who is named as lessor on the contract.
Can a lessor enter the property without notice?
Generally no. Tenancy laws require reasonable notice except in an emergency, and the permitted reasons for entry, such as inspections, repairs or showings, are set out in the lease and in state legislation. Follow the statutory notice period rather than the lease alone.
What happens if the lessor sells the leased property?
A sale does not automatically end a genuine lease. The buyer usually takes the property subject to the existing lease, and the lessor must notify the lessee and use the prescribed form where the state requires one. Access notice periods still apply during the sale.
What is the difference between a lessor and a landlord?
For residential property, nothing in substance. Lessor is the formal word used in contracts, legislation and tribunal documents, while landlord is the everyday term. Lessor also stretches well beyond property, covering vehicle, equipment and fleet leases where landlord would not fit.
Do lessors have to lodge the bond?
For residential tenancies, yes. Each state sets the rules for lodging the bond, any interest on it and the return process, and lodging late can limit a claim at the end of the lease. Commercial and equipment leases are different, with security usually held as a bank guarantee or cash deposit under the contract rather than lodged with a state authority.
Related terms
Lessee
A lessee is the party that takes the right to use an asset, such as premises, a vehicle or equipment, from the lessor under a lease.
Read definitionLease
A lease is a contract giving the lessee the right to use an asset owned by the lessor for a set term in return for payments.
Read definitionCaptive lessor
A captive lessor is a finance company owned or sponsored by a manufacturer, distributor or dealer network that exists mainly to provide leasing and finance supporting the vendor's sales.
Read definitionIndependent lessor
An independent lessor is a non-bank, non-captive finance company that owns the assets it leases and prices deals on its own underwriting appetite rather than a manufacturer's program.
Read definitionFinance lease
A finance lease is a lease where the financier owns the asset and your business pays to use it for most of its life, taking on the risks of ownership.
Read definitionOperating lease
An operating lease is a lease where you pay to use an asset for a set term and hand it back, with the financier keeping ownership and the resale risk.
Read definitionGo deeper
Sources
This article is general information only and is not financial advice.