Legal Definitions - operating lease

An operating lease is a type of lease agreement where the lessee (the person who is renting the property) uses the property for a shorter period than its useful life. The lessor (the person who owns the property) is responsible for paying taxes and other expenses on the property. This type of lease is commonly used for equipment or machinery.

A company wants to use a piece of machinery for a project that will last for two years. Instead of buying the machinery, they decide to enter into an operating lease agreement with the owner of the machinery. The company will pay rent for the two years they use the machinery, and the owner will be responsible for paying taxes and other expenses on the machinery during that time.