A sale and leaseback is an arrangement made between two parties for one to purchase a property and immediately lease it back to the seller. Such transactions are commonly used with commercial real estate, though they have even involved countries. For instance, the United States entered into a 99-year sales/leaseback arrangement with China for Hong Kong. If you are considering a sales/leaseback arrangement, it is important to work with a College Station real estate lawyer who can help you avoid costly mistakes.
How the Sales/Leaseback Arrangement Works
In a sales/leaseback, a seller/lessee sells a property to another party, the buyer/lessor. The buyer/lessor then leases the property back to the seller/lessee for a previously agreed upon cost. This lease is generally long-term. The seller thereby divests himself of the property in order to free up assets for other purposes, while still maintaining use of it. There are actually several types of such arrangements:
- The indirect purchase
- The direct purchase
- The construction sale/leaseback
Purposes of Sales/Leasebacks
A sales/leaseback has a number of purposes, among them:
- The seller can use freed-up assets to expand an existing business.
- The seller can upgrade plant equipment or use the assets to invest in a new business venture.
- The sale of the property can reduce the debt of a company, thereby improving its balance sheet.
- The sale can reduce any business income tax liability that has been incurred from appreciation of the land value of the real estate.
- The seller can take a deduction on business tax for the rent payments as a business expense.
- The buyer can enjoy a return on the investment both through lease of the property and any appreciating value.
- The buyer can be assured of having a reliable, long-term tenant who will provide a continued income.
- The buyer can take a deduction for investing in the property.
- There is little investment risk taken by the buyer/lessor.
Ideally, a sale/leaseback arrangement benefits both parties. In some arrangements, a provision is included whereby the seller/lessee may purchase back the property at a later date.
Make Sure to Have Legal Representation if You Enter into a Sale/Leaseback
While a sale/leaseback may be to your advantage, it is important that you work with a College Station real estate attorney who has the knowledge and experience to provide you with advice on how best to proceed. Call Peterson Law Group today to arrange a consultation at 979-703-7014 or 936-337-4681.