What is a Lessee? Key Insights for Australian Finance in 2025

In Australia’s ever-evolving finance landscape, the term lessee pops up across asset finance, equipment leasing, and even residential property agreements. But what exactly does it mean to be a lessee in 2025, and how do new financial regulations impact both individuals and businesses entering lease agreements?

The Lessee: More Than Just a Renter

A lessee is the party that obtains the right to use an asset—such as machinery, vehicles, office space, or even solar panels—under a lease agreement. In return, the lessee pays the owner (the lessor) a series of agreed-upon payments over a set period.

While it might sound straightforward, the implications of being a lessee go far beyond simply ‘renting’. Lessees can be individuals (like tenants in a residential apartment) or businesses (leasing commercial equipment or vehicles). The key feature: the lessee controls and uses the asset, but ownership remains with the lessor unless there’s a purchase clause at the end of the term.

• Residential lessee: A tenant leasing an apartment in Melbourne.

• Commercial lessee: A small business leasing a delivery van.

• Equipment lessee: A solar installer leasing rooftop solar panels for client installations.

2025 Policy Updates: Leasing Rules and Financial Reporting

The leasing landscape has shifted dramatically in recent years, especially for businesses. Since the adoption of AASB 16 (the Australian accounting standard for leases), lessees must now recognise most leases on their balance sheets—bringing greater transparency to financial statements.

In 2025, the Australian government and the Australian Accounting Standards Board (AASB) have reinforced these changes, with an eye on digital transparency and sustainability:

• Balance Sheet Impact: Lessees must record a ‘right-of-use’ asset and a lease liability for nearly all leases, including many previously classified as operating leases.

• Short-term and Low-value Leases: Exemptions remain for leases under 12 months or low-value assets, but reporting requirements are stricter for larger contracts.

• Green Leasing Initiatives: New federal incentives in 2025 encourage lessees to enter into sustainable asset leases, particularly for electric vehicles and renewable energy equipment.

• Digital Contracts: Electronic lease agreements are now the norm, with digital signatures and secure online portals streamlining the process for both lessors and lessees.

For example, a Sydney-based logistics company leasing a fleet of electric trucks now reports both the value of the trucks and the corresponding lease liabilities in its annual financial statements—providing a clearer picture to investors and lenders.

Lessee Rights, Responsibilities, and Real-World Tips

Being a lessee comes with both advantages and obligations. Here’s what to keep in mind if you’re considering—or already in—a lease agreement:

• Right to Use: The lessee has the exclusive right to use the leased asset as defined in the contract.

• Payment Obligations: Lessees must make timely payments as agreed, or risk penalties and potential asset repossession.

• Maintenance and Insurance: Many leases require the lessee to maintain and insure the asset, though terms vary—always check your agreement.

• End-of-Lease Options: Some leases offer purchase or renewal options, while others require the asset’s return in good condition.

• Disclosure Requirements: For businesses, full disclosure of lease commitments is now mandatory in annual reports under AASB 16.

Pro tip: Before signing any lease, compare the total cost of leasing versus buying, review early exit penalties, and assess whether the asset will retain value throughout the lease term.

Leasing Trends and the Lessee’s Future

With interest rates expected to remain steady in 2025 and tax incentives for green assets, leasing is an attractive option for many Australians. The growth of ‘as-a-service’ models—think car subscriptions or solar-as-a-service—means more individuals and businesses will take on the role of lessee, enjoying flexibility without the burdens of ownership.

Moreover, digital platforms now allow lessees to manage agreements, payments, and compliance from their smartphones, making the process more accessible than ever.