A contract between a lessor and lessee that allows the lessee rights to the use of a property owned or managed by the lessor for a period of time. The lease agreement does not provide ownership rights to the lessee; however, the lessor may grant certain allowances to modify, change or otherwise adapt the property to suit the needs of the lessee. During the lease period, the lessee is responsible for the condition of the property.
Advantages of lease agreement
For businesses rates revaluation, leasing property may have significant financial benefits, which are outlined below:
Leasing is less capital-intensive than purchasing, so if a business has constraints on its capital, it can grow more rapidly by leasing property than by purchasing property.
Capital assets may fluctuate in value. Leasing shifts risks to the lessor, but if the property market has shown steady growth over time, a business that depends on leased property is sacrificing capital gains.
Depreciation of capital assets has different tax and financial reporting treatment from ordinary business expenses. Lease payments are considered expenses rather than assets, which can be set off against revenue when calculating taxable profit at the end of the relevant tax accounting period.
In some cases, a lease agreement may be the only practical option; for example, a small business may wish to open a location in a large office building within tight location parameters.