Real Estate 101

Defining the Sale-Leaseback

What is a sale-leaseback? How can it help you achieve your goals?

Nadine Anderson

Nadine Anderson

Defining the Sale-Leaseback

Whether you're considering or just want to know more, a sale-leaseback is a fairly common real estate transaction that allows you to sell your property without having to move your business.

What is a sale-leaseback?

A sale-leaseback is a transaction that occurs when an owner sells an asset and then leases that asset back from the buyer, usually for a long period of time. This means the owner can continue to occupy a property once they’ve sold it to their new landlord — they now become the lessee and the buyer becomes the landlord.

It is a fairly common transaction, US sale-leaseback net-lease volume is $8-$10B a year. (CREXi)

Pros and cons of sale leasebacks

If you’re trying to figure out whether a sale-leaseback is right for you, there are many benefits to consider. As a seller/lessee, you can:

  • Run, and possibly expand, your business with both the required cash and continued use of the real estate
  • Take advantage of tax deductions from rent payments
  • Increase cash flow or free up capital for business or personal reasons like investments, tuition, retirement, expansions, or working capital for projects
  • Reduce risk by not owning the asset
  • Continue to use and occupy a property, saving the stress, time, and considerable expense of moving

Of course, like anything else, there are some drawbacks to sale-leaseback transactions. Keep in mind you will probably face some tax and business implications, as well as time and money invested in executing this transaction. These things are different for everyone and depend on your jurisdiction, so you should discuss them with professionals, such as your accountant and real estate agent.

Example of a sale-leaseback

Sale-leaseback transactions often happen between commercial property owner-occupants and real estate investors. First, the owner-occupant sells its asset to the investor, which then leases it back to that original owner usually in a long term (10+ year) lease. The seller now has capital freed up for other purposes, and the investor has gained a cash-flowing asset which helps them diversify and expand their income.

Overall, sale-leaseback transactions can make a lot of sense for both sellers and buyers. If you’re interested in learning more about whether a sale-leaseback is right for you and how they might help you achieve your goals, give Keyway a shout.