Understanding a Sale and Leaseback Transaction

Sale and Leaseback Transaction

Sale and leaseback transactions have been popular for some time, as they provide benefits for both businesses and investors. In this arrangement, a company sells its commercial property to a buyer or investor and then signs a lease agreement to rent the property back on specific terms. The parties agree on the rental rate, the lease term, and any rental escalations during the lease period.

The primary benefit for the company is improved liquidity, with funds available to reduce debt or invest in growth strategies. This process also reduces any downtime and disruptions that would typically occur when relocating to new premises.

In a typical sale-leaseback transaction, a property owner sells its owner-occupied building to an investor while securing a long-term lease commitment from the new owner. This enables the owner company to access liquid capital that would have otherwise been tied up in real estate and redeploy this immediate cash flow to ensure business survival, often achieving a greater return than if the capital were invested in the property.

Sale and leaseback transactions offer businesses a reduction in interest-bearing debt, an improved balance sheet, improved profitability, and reduced risk due to fixed future occupational costs. They provide an alternative to traditional bank financing, and the process is often faster than banking approvals allow. Bridging finance can also be arranged to speed up access to capital.

Investors are drawn to these deals as they provide predictable returns through long-term leased real estate, which can also provide a hedge against inflation. Transactions of this nature are usually complex, and having the right property partner with experience in this field is essential to ensure a smooth and hassle-free process.

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