"Lease is a legal and biding contracts that set forth the terms of rental agreements in real estate and real…

The statement is correct, and it can be discussed by examining what makes a lease a contract, what terms it sets forth, and the property it covers — a lease being an agreement whereby the lessor conveys to the lessee, in return for rentals, the right to use an asset for an agreed period of time.

It is a contract, not a sale: what passes to the lessee is the right of use, not ownership; legal title stays with the lessor throughout the lease term, and the asset returns to him on expiry unless a purchase option is exercised.

It is legal and binding: being an agreement supported by consideration (the rentals) and made between competent parties for a lawful object, it is enforceable in a court of law, and breach by either party gives the other a legal remedy.

Two parties are essential: the lessor, who owns and grants the right, and the lessee, who takes and uses the asset — hence a lease can never be a unilateral act.

It sets forth the term: the agreement fixes the lease period, whether it is cancellable, and the renewal or purchase options available at the end of that period.

It sets forth the rental terms: the amount of each rental, its due date and frequency, any escalation clause, and the security deposit or advance rent payable at the outset.

It sets forth the duties of the parties: who bears maintenance, repairs, insurance, taxes and the risk of damage, and what constitutes default and its consequences.

It covers real estate: the leasing of land, buildings, offices, warehouses and residential premises, which is the most familiar form of lease and the basis of the tenancy relationship.

It covers real and personal property: plant and machinery, vehicles, aircraft, computers and equipment can equally be leased — in Nepal, vehicle and equipment leases by finance companies are a common example of leasing personal property.

Its accounting treatment follows the legal substance: an operating lease, being a mere rental, has its payments charged as an expense in the income statement of the lessee, while a finance lease, which transfers substantially all the risks and rewards of ownership, is capitalized by the lessee as an asset with a corresponding lease liability, and the asset is then depreciated and the rental split into interest and principal.

Its importance justifies the legal formality: because a lease commits both parties over a long period and creates a real financial obligation, the law and accounting standards both insist that its terms be written, definite and disclosed — otherwise users of the financial statements would be misled about the entity's assets and obligations.