In recent years, sale and leaseback transactions have increased in popularity; due to the many benefits they have.
In this article, Commercial Property Solicitor Hannah Martin outlines what sale and leaseback is, why it may be a good option for your company and the pros and cons.
What is sale and leaseback?
Essentially, a sale and leaseback is where a company sells commercial property which they own and occupy to a third party who then agrees to simultaneously lease the Property back to the company on completion of the transfer so that they can remain in the property.
The purchaser takes property ownership and becomes the landlord, with the company becoming the tenant.
How does a sale and leaseback work?
The main features of a sale and leaseback transaction are as follows:
- The occupying company enters into a sale and leaseback agreement with the third party
- The occupying company sells the ownership of their building to the third party
- The third party, as the new owner, grants a lease of the Property back to the company
Why would a business enter into a sale and leaseback agreement?
A third party could be any entity, or investor, who is willing to assist and there may be various reasons for a company to enter into such an agreement.
The main reason for a company entering into a sale and leaseback agreement is to gain a cash injection.
This could be the case if a company is struggling, or if they want to fund something (such as the lease of an additional property).
Is sale and leaseback a good alternative to financing?
Effectively, sale and leaseback can be an alternative to financing; the only difference being in the ownership of the property is transferred rather than the company seeking finance in another way, such as obtaining a loan, which they may not be eligible for.
Some companies may also enter these transactions is they are looking to separate its assets from its operating business.
In these types of transactions, the third party is often a company which has been set up by the same shareholders and directors of the selling company.
In the full article, Hannah discusses ekigibility for sale and leaseback and outlines the pros and cons. Click here to read it.