A lease is a contract between the owner of an asset—the lessor—and another party seeking use of the asset—the lessee. Through the lease, the lessor grants the right to use the asset to the lessee. The right to use the asset can be for a long period, such as 20 years, or a much shorter period, such as a month. In exchange for the right to use the asset, the lessee makes periodic lease payments to the lessor. A lease, then, is a form of financing to the lessee provided by the lessor that enables the lessee to obtain the use of the leased asset.
There are two main classifications of leases: finance leases and operating leases. In substance, a finance lease is equivalent to the purchase of some asset (lease to own) by the buyer (lessee) that is directly financed by the seller (lessor). An operating lease is an agreement allowing the lessee to use some asset for a period of time, essentially a rental.