What is 'Lease Rate'

The lease rate is the amount of money paid over a specified time period for the rental of an asset, such as real property or an automobile. The lease rate that the lender earns from allowing someone else to use his property compensates the lender for not being able to put that property to another use during the term of the lease.


Lease rate can have two different nuances depending on what type of property is being leased. In commercial real estate, the lease rate is the cost to occupy the space, commonly stated as a dollar amount per square foot of space per year. The lease rate can also be stated in terms of dollars per month, as with a rental agreement, or even dollars per year.

The terms of the lease will spell out the time period that the lease rate applies for and may also spell out incremental increases in the lease rate over multi-year leases. To get a true idea of the cost of renting a space, in addition to the lease rate, the potential tenant will need to know if the lease is single, double or triple net, in other words, whether he or the property owner will be responsible for expenses such as utilities, maintenance and property taxes. Because most commercial lease rates are set out in dollars per square foot, it makes it easier for the potential lessee (tenant) to compare the leasing costs of properties with different size profiles.

Lease Rates on Cars and Equipment

In the case of an automobile lease, the monthly payment on the vehicle is based on the car's expected depreciation and residual value (a predetermined amount that the car will be worth at the end of the lease term) as well as the lease rate, which is usually stated as a percentage. Through monthly payments, the lessee compensates the automobile dealer for both the vehicle's depreciation and for tying up assets in vehicles instead of investing that money elsewhere. In this case, the lease rate is roughly equivalent to an interest rate. The lease payments include the lease rate factor, also called the money factor, that captures the financing element of car leases.

The Difference Between Car Lease Rates and Space Lease Rates

When it comes to cars and equipment, the leasing company essentially buys the car from the dealer and rents it to you. So the lessor has “lent” the money for the purchase up front and you are paying back on that loan. Although the dealer and the leasing party can be the same person, setting up the three-party agreement allows the dealership to sell inventory to the leasing arm and the leasing arm to generate income on these pseudo loans before moving the vehicle back into the dealership as used inventory. The lessee gets a car that they can use without the burden of ownership.

In the case of commercial property, the building has been constructed as an investment with the hopes of bringing in tenants. There are only two entities in this transaction, and any compensation for the initial investment in the building is baked into the lease rate as part of the overall business plan.

When to Lease

The question of when to lease equipment or space rather than building or buying is one that businesses struggle with. Generally speaking, the key factor is how long the leased property is expected to be in use. For shorter term surges in equipment demand or operational expansion pushed by temporary market conditions, leasing is an excellent solution that minimizes sunk costs. If the increased demand is expected to be long term, then the up-front costs of ownership usually dwindle in comparison with the savings over time and the potential for appreciation in a commercial property. That said, some companies prefer to lease over the long term anyway, as it relieves the company from having to worry about non-core business issues like equipment and building maintenance.

  1. Lease Payments

    Lease payments are tied to the terms of different forms of leasing ...
  2. Operating Lease

    An operating lease is a contract that permits use of an asset ...
  3. Capitalized Lease Method

    A capitalized lease method is an accounting approach that posts ...
  4. Triple Net Lease (NNN)

    A triple net lease assigns sole responsibility to the tenant ...
  5. Capital Lease

    A capital lease is a lease that's considered to have the economic ...
  6. Lease Balance

    A lease balance is the outstanding sum that a borrower owes on ...
Related Articles
  1. Managing Wealth

    When Is Leasing a Car Your Best Bet?

    Leasing a car isn't for everyone. But it's attractive for those who want low initial payments and the ability to get a new vehicle every few years.
  2. Retirement

    Retirees: Should You Buy or Lease Your Car?

    To buy or lease – that is the question. For retirees, access to safer cars, comprehensive warranties and tax deductions may drive up leasing's appeal.
  3. Personal Finance

    Make the Right Choice: Buying or Leasing a Car

    Ask yourself these questions before deciding between leasing or buying a car.
  4. Personal Finance

    The Pros and Cons of Leasing a Car

    Consider these pros and cons before deciding whether or not to lease a car.
  5. Managing Wealth

    4 Ways to Get the Best Deal on a Car Lease

    Car buyers typically negotiate when purchasing a vehicle, but many don't negotiate when leasing a car. There are several ways to save if you ask.
  6. Investing

    Uncovering Hidden Debt

    Understand how financing through operating leases, synthetic leases, and securitizations affects companies' image of performance.
  7. Personal Finance

    Should You Buy or Lease a New Car?

    Deciding whether to lease or purchase a car depends on a number of factors.
  8. Personal Finance

    3 Questions to Consider When Buying a Car

    When deciding what kind of car to buy, make sure to answer these questions first.
  9. Managing Wealth

    Rental Properties: Cash Cow Or Money Pit?

    Create a real estate valuation system to forecast the profitability of an income-producing property.
  1. If a telecommunication company wants to build a tower on my land how much should ...

    Get help in understanding how much income it is possible to receive for leasing land to a telecommunications company for ... Read Answer >>
Trading Center