Municipalities act as lessors and lessees in lease agreements
You can identify a lease agreement wherever there's a legal agreement for one party to use the property or land of another party for a set period of time in exchange for payment. The lease agreement is a type of rental agreement over a definite period of time and with particular start and end dates.
The lease agreement will outline the rights and obligations of both parties as it relates to the lease. This includes details like the monthly payment amounts and length of the lease.
Example:
Your municipality has additional buildings or spaces that aren’t currently used. If you leased the space out to another party, you would be the lessor in a lease agreement.
Your city may need to lease property or equipment from another party. If your city leased snow removal equipment to use for the winter season, you would be the lessee in a lease agreement.
There are several terms to be aware of that will help you determine if an agreement constitutes a lease. DebtBook recommends that all lease agreements are reviewed to determine which are applicable to the GASB 87 standard.
Duration – How long the lease agreement will last, including a start date and end date.
Rent – The amount paid to the lessor each month for use of the underlying asset .
Underlying Asset (also known as nonfinancial asset) – The physical asset that is being leased/rented. Agreements for services or financial assets such as intellectual property do not apply.
Lease Term – The period during which a lessee has a noncancelable right to use an underlying asset.
What’s important here?
A lease agreement permits one entity to use another entity’s underlying asset for a defined period of time.
