SALE-LEASEBACK

About Sale Leaseback Arrangement


In a sale-leaseback agreement, the seller of a property becomes a leaseholder to a new owner, maintaining a management agreement but avoiding certain economic risks.


How does a purchase leaseback work? Any company, regardless of its size or structure, needs additional capital to thrive. Businesses are allowed to acquire capital by a combination of debt or equity financing. It is a well-known fact; a debt must be repaid and accounted for on the balance sheet as a debt. Equity, on the other hand, does not need to be repaid - but it comes at the cost of proper ownership. A lease buyback enables this to occur.


The Benefit of Sale-Leaseback Arrangement


Benefits for the seller.

Typically, the sale-leaseback will have an agreement between 20 to 30 years with options to renew. This other company will be able to enjoy several economic incentives, including:


Cash creation. The seller can immediately regain access to capital that was once tied up in owning property. The cash will be liquid and accessible, allowing the business to utilize it for operational costs. The amount accessible is also higher than that of mortgage financing.


A form of alternative financing. Sale-leaseback agreements also enable sellers the ability to restructure the lease terms to avoid refinancing or provisions. Sellers can skip appraisal fees and other forms of conventional fees that are associated with more traditional, bureaucratic financing.


Accounting benefits. Sellers can replace a fixed asset with the current asset with the help of a sale-leaseback.


Benefits for the buyer.

The benefit for buyers is that they will be able to secure a higher predictable return rate. Buyers will also avoid state usury laws that may potentially limit the rate of interest charged for financing.


The option to customize lease options. In this sort of agreement, the buyer can take advantage of renewed lease terms that can be customized to meet their unique demands.


Sale leasebacks are a symbiotic relationship. Certain developers and owners will have the ability to cash out early, while the buyer can keep management in place and get a return on the leasehold. To learn more about sale-leasebacks, contact us.