What happens if a lessee defaults on their lease?

When a lessee defaults on their lease, the lessor has certain rights and remedies they can pursue, one of which may involve utilizing a performance bond. A performance bond is a financial guarantee ensuring that the lessee fulfills their obligations under the lease agreement. If a lessee fails to meet those obligations, the lessor can claim against the performance bond to recover losses or costs incurred due to the default. This mechanism provides financial security to the lessor, allowing them to mitigate potential damages caused by the lessee's failure to perform.

In contrast, the other options do not accurately reflect the standard outcomes of a lessee’s default. For example, the assertion that the lessor loses all their investment is not accurate, as the lessor has legal recourse through various measures, including claiming against security, pursuing legal action, or initiating repossession of the leased asset. Additionally, the notion that the lessee receives a refund is incorrect since defaults typically do not warrant refunds; rather, a default could lead to losses that the lessee may be held accountable for. Lastly, the lease is not automatically terminated upon default; typically, the lessor must follow a defined legal process, which may involve providing notice and the opportunity to cure the default depending on