Definition: A leasehold is an intangible asset to a lessee that gives the him or her certain rights to use leased property. These rights are often referred to as leasehold rights or simply leasehold. The the lessor grants these rights to the lessee when he or she signs a lease contract.
What Does Leasehold Mean?
Many companies can’t afford to buy buildings or large pieces of equipment, so they rent them. When a company signs a rental contract for a period of time, the contract is considered to be a lease contract and the rent payments are considered lease payments.
Take a car for example. When a company leases a vehicle, it is given the rights to possess the vehicle, use it, and sometimes even customize it to the lessee. Unless lease contract is broken or an exception is stated in the lease contract, the leaser cannot confiscate the leased property from the lessee prematurely. The car remains in the lessee’s possession and use until the lease contract is over.
Some leases allow the lessee to customize or alter the leased property. This is called a leasehold improvement. In this case, the leasehold gives the lessee the right to improve the leased property according to the contract. Usually some specific improvements are agreed upon between the lessor and lessee before the improvements are made. Most of the time leasehold improvements are made on leased buildings. Retailers usually want to customize the look of their rented space, so it matches their branding. Depending on the lease contract, the lessor or the lessee will pay for the building improvements.