What is a sale leaseback?

A sale-leaseback transaction involves a company selling its property, such as a building or equipment, to a buyer (often a real estate investor or financial institution) and simultaneously leasing it back from the buyer. This allows the company to free up capital tied up in the property while still being able to use the property for its operations.

The terms of the lease, including the lease term, rental rate, and any renewal options, are negotiated as part of the sale-leaseback agreement. The company typically continues to maintain and operate the property under the lease agreement.

Sale-leaseback transactions are often used by companies to raise capital for growth, pay down debt, or improve liquidity. They can also provide tax benefits as lease payments are typically tax-deductible.

However, sale-leaseback transactions may come with risks, such as potential rent increases or the loss of control over the property. Companies considering a sale-leaseback should carefully evaluate the terms of the agreement and consider their long-term financial and operational goals.