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A contractual agreement by which one party conveys an estate in property to another party, for a limited period, subject to various conditions, in exchange for something of value, but still retains ownership.

A lease contract can involve any property that is not illegal to own. Common lease contracts include agreements for leasing real estate and apartments, manufacturing and farming equipment, and consumer goods such as automobiles, televisions, stereos, and appliances.

Leases are governed by statutes and by Common Law, or precedential cases. Most leases are subject to state laws, but leases involving the U.S. government are subject to federal laws. Generally, federal laws on leases are similar to state laws.

A lease is created when a property owner (the offeror) makes an offer to another party (the offeree), and the offeree accepts the offer. The offer must authorize the offeree to possess and use property owned by the offeror for a certain period of time without gaining ownership. A lease must also contain consideration, which means that the offeree must give something of value to the offeror. Consideration usually consists of money, but other things of value may be given to the offeror. Finally, the offeror must deliver the property to the offeree or make the property available to the offeree. When a lease is formed, the property owner is called the lessor, and the user of the property is called the lessee.

Generally, a lease may be written or oral, but a lease for certain types of property must be in writing and signed by both parties. For example, if a lessee seeks to lease real property (land or buildings) for more than one year, the lease must be in writing. Some leases must be written, signed, and recorded in a registry of deeds. Such leases usually concern real property that will be leased for a period of more than three years.

A lease term begins when the lessee receives a copy of the lease. However, the lease need not be given directly to the lessee; it is enough that the lessee knows that the lease is in the hands of a third person acting on behalf of the lessee. A lease may also take effect when the lessee assumes control over the property.

In all states, leases dealing with commercial goods and services are strictly regulated by statute. Commercial lease laws govern the rights and duties of lessors and lessees in leases that involve commercial goods. Most states have enacted section 2A of the Uniform Commercial Code, which is a set of exemplary laws formulated by the National Conference of Commissioners on Uniform State Laws and by the American Law Institute. The laws governing commercial leases do not apply to leases of real estate, which are covered by Landlord and Tenant laws.

In all states a court may void an Unconscionable lease. A lease is unconscionable if it unduly favors one party over the other. For example, assume that a small-business owner leases property for 30 years in order to operate a gas station. The lease contains a clause stating that the lessor may revoke the agreement without cause and without notice. If the lessee performs his obligations under the lease, but the lessor revokes the lease without notice, the clause allowing termination without notice may be found to be unconscionable. A determination of unconscionability must be made by a judge or jury based on the facts of the case. The fact finder may consider factors such as the relative bargaining power of the parties, other terms in the lease, the purpose of the lease, and the potential loss to either party as a result of the terms of the lease.

Commercial leases must contain certain warranties. If they do not, the warranties may be read into them by a court. One such Warranty is the warranty of merchantability. Generally, this warranty requires that all leased property be fit for its general purpose. For example, if a passenger vehicle leased for transportation fails to operate, this failure might be a breach of the Implied Warranty of merchantability, and the lessee could sue the lessor for damages suffered as a result.

Another warranty implied in commercial leases is the warranty of fitness for a particular purpose. This warranty applies only if the lessor knows how the lessee plans to use the property and that the lessee is relying on the lessor's expertise in choosing the best goods or services.

A lessee may assign a lease to a third party, or assignee. An assignment conveys all rights under the lease to the assignee for the remainder of the lease term, and the assignee assumes a contractual relationship with the original lessor. However, unless the lessor agrees otherwise, the first lessee still retains the original duties under the lease agreement until the lease expires. Generally, an assignment is valid unless it is prohibited by the lessor.

An assignment differs from a sublease. In a sublease the original lessee gives temporary rights under the lease to a third party, but the third party does not assume a contractual relationship with the lessor. The original lessee retains the same rights and obligations under the lease, and forms a second contractual relationship with the sublessee. Like assignments, subleases generally are valid unless they are prohibited by the lessor.

If a lessor defaults on his obligations under the lease, the lessee may sue the lessor for damages. The measure of damages can vary. If a lessor breaches the lease by sending nonconforming goods, or goods that were not ordered by the lessee, the lessee may reject the goods, cancel the lease, and sue the lessor to recover any monies already paid and for damages caused by the shipment of the nonconforming goods. If the lessee defaults on obligations under the lease, the lessor may cancel the lease, withhold or cancel delivery of the goods, or lease the goods to another party and recover from the original lessee any difference between the amount the lessor would have earned under the original lease and the amount the lessor earns on the new lease.

One controversial lease is the rent-to-own lease. Under such a lease, the lessee pays a certain amount of money for a certain period of time, and at the end of the period, the lessee gains full ownership of the leased item. Rent-to-own leases are often associated with consumer goods such as televisions, stereos, appliances, and vehicles. Many rent-to-own leases provide that the lessor may regain possession and ownership of the property if the lessee defaults. Such clauses have been found to be unconscionable if they are exercised after the lessee has paid more than the market value of the leased item.

For example, assume that a party leases a television worth $300. The lease obliges the lessee to make payments of $50 a month for one year. At the end of the lease period, the lessee will have paid $600 for the television. The amount of the total payment may not be unconscionable, because the lessee gains a television without making one large payment. However, if the lessee defaults after making $550 in payments, and the lessor repossesses the television, a court may find that the lessor's actions are unconscionable and order that the television be returned to the lessee.

Further readings

Huddleson, Edwin E., III. 2003. "Leasing Is Distinctive!" Uniform Commercial Code Law Journal 35 (winter).Fishbein, Bette K., Lorraine S. McGarry, and Patricia S. Dillon. 2000. Leasing: A Step Toward Producer Responsibility. New York: INFORM.


Rent Strike; Subletting.

West's Encyclopedia of American Law, edition 2. Copyright 2008 The Gale Group, Inc. All rights reserved.


1) n. a written agreement in which the owner of property (either real estate or some object like an automobile) allows use of the property for a specified period of time (term) for specific periodic payments (rent), and other terms and conditions. Leases of real property describe the premises (often by address), penalties for late payments, termination upon default of payment or breach of any significant conditions, increases in rent based on cost of living or some other standard, inclusion or exclusion of property taxes and insurance in rent, limitations on use (for a butcher shop, a residence for the family only, no pets), charges for staying on beyond the term (holding over), any right to renew the lease for another period, and/or a requirement for payment of attorneys fees and costs in case of the need to enforce the lease (including eviction). A lease is distinguished from a mere renting of the premises on a month-to-month basis, and cannot exceed a year unless agreed to in writing. A "triple net" lease includes both taxes and insurance in the rent. 2) v. renting out real property or an object pursuant to a written agreement. (See: leasehold, rent, real property, eviction, unlawful detainer, statute of frauds, triple net lease)

Copyright © 1981-2005 by Gerald N. Hill and Kathleen T. Hill. All Right reserved.


a grant of the use of land (or other subject matter) for a specified term. In relation to land, the grant confers a right of exclusive possession for a ‘term or years’, usually in return for the payment of a periodic sum (rent) or a capital sum (a premium) or both. A lessee may ‘sublet’ to a sub-lessee, who will then acquire the right of exclusive possession as against the lessee, who will become entitled to receive the rent stipulated for in the sublease. Leases maybe legal or equitable. A legal lease is sometimes referred to as a demise. A legal lease for periods in excess of three years requires to be made by deed. The same basic idea applies in Scotland but the rules are very different.

The term ‘lease’ is also used in connection with contracts for the hiring of equipment or other chattels for a specified period. In relation to equipment and plant, there are two distinct types of leasing, namely finance leasing and operating leasing. A finance lease is a lease for the bulk of the asset's economic life and from which the lessor expects to obtain his normal profit on the asset without being involved in further activity in respect of it; such leases are generally non-cancellable or cancellable only on payment of a major penalty. Operating leases are effectively all other leases; they are cancellable by the lessee at short notice and without major penalty; they are arrangements under which the lessor expects to release or sell the asset, obtaining significant portions of his total profit on the asset from each successive transaction. See HIRE.

Collins Dictionary of Law © W.J. Stewart, 2006

LEASE, contracts. A lease is a contract for the possession and profits of lands and tenements on one side, and a recompense of rent or other income on the other; Bac. Ab. Lease, in pr.; or else it is a conveyance of lands and tenements to a person for life, or years, or at will, in consideration of a return of rent, or other recompense. Cruise's Dig. tit. Leases. The instrument in writing is also known by the name of lease; and this word sometimes signifies the term, or time for which it was to run; for example, the owner of land, containing a quarry, leases the quarry for ten years, and then conveys the land, "reserving the quarry until the end of the lease;" in this case the reservation remained in force tin the ten years expired, although the lease was cancelled by mutual consent within the ten. years. 8 Pick. R. 3 3 9.
     2. To make such contract, there must be a lessor able to grant the land; a lessee, capable of accepting the grant, and a subject-matter capable of being granted. See Lessor; Lessee.
     3. This contract resembles several others, namely: a sale,, to constitute which there must be a thing sold, a price for which it is sold, and the consent of the parties as to both. So, in a lease there must be a thing leased, the price or rent, and the consent of the parties as to both. Again, a lease resembles the contract of hiring of a thing, locatio condudio rei, where there must be a thing to be hired, a price or compensation, called the hire, and the agreement and consent of the parties respecting both. Poth. Bail a rente, n. 2.
     4. Before proceeding to the examination of the several parts of a lease, it will be proper here to say a few words, pointing out the difference between an agreement or covenant to make a lease, and the lease itself. When an agreement for a lease contains words of present demise, and there are circumstances from which it may be collected that it was meant that the tenant should have an immediate legal interest in the term, such an agreement will amount to an actual lease; but although words of present demise are used, if it appears on the whole, that no legal interest was intended to pass, and that the agreement was only preparatory to a future lease, to be made, the construction will be governed by the intention of the parties, and the contract will be held to amount to no more than an agreement for a lease. 2 T. R. 739. See Co. Litt. 45 b: Bac. Abr. Leases, K; 15 Vin. Abr. 94, pl. 2; 1 Leon. 129; 1 Burr. 2209; Cro. Eliz. 156; Id. 173; 12 East, 168; 2 Campb. 286; 10 John. R. 336; 15 East, 244; 3 Johns. R. 44, 383; 4 Johns. R. 74, 424; 5 T. R. 163; 12 East, 274; Id. 170; 6 East, 530; 13 East, 18; 16 Esp. R. 06; 3 Taunt. 65; 5 B. & A. 322.
     5. Having made these few preliminary observations, it is proposed to consider, 1. By what words a lease may be made. 2. Its several parts. 3. The formalities the law requires.
     6.-1 The words "demise, grant, and to farm let," are technical words well understood, and are the most proper that can be used in making a lease; but whatever words are sufficient to explain the intent of the parties, that the one shall divest himself of the possession and the other come into it, for such a determinate time, whether they run in the form of a license, covenant, or agreement, are of themselves sufficient, and will, in construction of law, amount to a lease for years as effectually as if the most proper and pertinent words had been made use of for that purpose. 4 Burr. 2209; 1 Mod. 14; 11 Mod. 42; 2 Mod. 89; 3 Burr. 1446; Bac. Abr. Leases; 6 Watts, 362; 3 M'Cord, 211; 3 Fairf. 478; 5 Rand. 571; 1 Root, 318.
     7.-2. A lease in writing by deed indented consists of the following parts, namely, 1. The premises. 2. The habendum. 3. The tenendum. 4. The reddendum. 5. The covenants. 6. The conditions. 7. The warranty. See Deed.
     8.-3. As to the form, leases may be in writing or not in writing. See Parol Leases. Leases in writing are either by deed or without deed; a deed is a writing sealed and delivered by the parties, so that a lease under seal is a lease by deed. The respective parties, the lessor and lessee, whose deed the lease is, should seal, and now in every case, sign it also. The lease must be delivered either by the parties themselves or their attorneys, which delivery is expressed in the attestation "sealed and delivered in the presence of us." Almost any manifestation, however, of a party's intention to deliver, if accompanied by an act importing such intention, will constitute a delivery. 1 Ves. jr. 206.
     9. A lease may be avoided, 1. Because it is not sufficiently formal; and, 2. Because of some matter which has arisen since its delivery.
    10.-1. It may be avoided for want of either, 1st. Proper parties and a proper subject-matter. 2d. Writing or, printing on parchment or paper, in those cases where the statute of frauds requires they should be in writing. 3d. Sufficient and legal words properly disposed. 4th. Reading, if desired, before the execution. 5th. Sealing, and in most cases, signing also; or, 6th. Delivery. Without these essentials it is void from the beginning.
    11.-2. It may be avoided by matter arising after its delivery; as, 1st. By erasure, interlineation, or other alteration in any material part; an immaterial alteration made by a stranger does not vitiate it, but such alteration made by the party himself, renders it void. 2d. By breaking or effacing the seal, unless it be done by accident. 3d. By delivering it up to be cancelled. 4th. By the disagreement of such whose concurrence is necessary; as, the husband, where a married woman is concerned. 5th. By the judgment or decree of a court of judicature.

A Law Dictionary, Adapted to the Constitution and Laws of the United States. By John Bouvier. Published 1856.
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