Quick answer
A lessee is the person or business that rents an asset from its owner under a lease and pays for the right to use it. The lessee gets possession and use, but not ownership. In Australian business, lessees lease equipment, vehicles and premises, and lenders treat the lease payments as a fixed commitment when they work out how much more the business can borrow.
Key points
- The lessee uses the asset; the lessor keeps legal ownership
- Payments usually run for the full term, even if you stop needing the asset
- A lessor may register its interest on the PPSR against your business name or ABN
- Lenders count every lease instalment when assessing a new loan
If your business rents a coffee machine, a forklift or a shopfront under a written agreement, your business is the lessee. You have the asset, you use it, you pay for it each month, and someone else owns it.
What a lessee actually signs up for
The lease contract sets out what the lessee must do, and it’s usually more than just paying on time. Typical obligations include:
- Paying every instalment for the full term. Most equipment leases can’t be cancelled just because trade slows. Business.gov.au points out that you may keep paying even if you no longer need the gear, and you can’t sell it to recover money.
- Looking after the asset. Servicing, insurance and repairs are commonly the lessee’s job, particularly under a finance lease.
- Returning it in good condition, or paying out a residual value at the end, depending on the type of lease.
- For premises, paying outgoings, keeping to the permitted use and handing back the space in the agreed state (make-good).
The other side of the contract is the lessor, the owner. It keeps legal title and, in most cases, the depreciation claim.
Lessee vs borrower: why the difference matters
A business that buys a truck with a chattel mortgage is a borrower and owns the truck from day one. A business that leases the same truck is a lessee and owns nothing. That affects three things:
| Lessee (lease) | Borrower (chattel mortgage) | |
|---|---|---|
| Who owns the asset | The lessor | Your business |
| Can it be offered as security for other loans? | No | Possibly, once equity builds |
| Usual tax picture | Lease payments claimed as an expense | Interest and depreciation claimed |
Our leasing vs buying comparison goes further into which suits which kind of business.
How lenders look at a lessee’s commitments
When you apply for new finance, a credit assessor adds up every regular commitment, and lease instalments sit on that list next to loan repayments. Three practical points follow:
- Leases reduce borrowing capacity. A $1,200 monthly lease is $14,400 a year that can’t go towards a new loan. Our business borrowing power calculator shows the effect.
- The PPSR tells the story. Leasing companies commonly register their interest on the PPSR. A lender searching your business will see those registrations and ask about them, so list your leases upfront.
- Larger companies may show leases on the balance sheet. Under the Australian lease accounting standard AASB 16, entities that prepare general purpose financial statements record most leases as a right-of-use asset and a matching liability, which can push up measures like gearing.
Thinking about adding finance on top of existing leases? Tell us what you need and we’ll look at the whole picture.
Example: a café owner as lessee
A café in Geelong leases its premises for five years and leases a $22k espresso machine over four years at $560 a month. The owner wants $60k for a kitchen upgrade. The lender treats both the rent and the $6,720 a year on the machine as fixed costs. The machine can’t be used as security because the leasing company owns it, so the owner looks at an unsecured business loan or equipment finance on the new kitchen gear, where the new equipment becomes the security.
Already leasing and need more funding?
Existing leases don’t rule you out. They just need to be part of the conversation. Sixty seconds or so is all the form needs, and no credit search is run when you send it. Rather than being circulated to lender after lender, your enquiry lands with a single specialist here who reads your situation and phones you. Be precise about the leases and monthly instalments you already carry, because that’s what lets us suggest a workable structure on the first call.
Frequently asked questions
Can a lessee claim lease payments as a tax deduction?
Generally, lease payments on equipment used to earn business income are deductible, and the lessor (as owner) claims the depreciation. Hire purchase and luxury car leases follow different rules, so confirm the treatment of your own agreement with your accountant.
Can I end an equipment lease early?
Usually only by paying out the remaining instalments, sometimes less a discount, plus any fees in the contract. Business.gov.au warns that you may have to keep paying for the full term even if you no longer need the equipment.
Why is there a PPSR registration against my business?
A leasing company or financier often registers its interest in the goods on the Personal Property Securities Register so its ownership is protected if your business fails. It's normal and comes off when the lease ends or the goods are returned.
Is a lessee the same as a tenant?
For premises, yes, the tenant under a commercial or retail lease is the lessee. The word lessee is used for both property and goods, while tenant is mostly used for property.
Does being a lessee help or hurt a loan application?
Neither by itself. A lender looks at whether the lease payments are affordable alongside the new loan, whether they've been paid on time, and whether a leased asset could be offered as security (it can't, because you don't own it).