Last updated: 12 April 2023
« Sale and leaseback » is a financial strategy involving the sale of an asset, which is subsequently leased back for a determined term.
Entering such transaction allows the seller-lessee to get liquidities and at the same use the asset. The sale-leaseback transaction comes with benefits fostering business growth in many ways.
Advantages
Firstly, the sale-leaseback transaction means liquidities for the seller-lessee company. The sale of the asset to another company is likely to bring the seller an important amount of money that can be further reinvested in the company’s activities. Such spare liquidity may help funding new projects, R&D investments or be used to acquire new assets on other markets.
Secondly, such transaction allows companies to optimize asset management by unlocking equity from asset purchase and focussing on their scope of business. Another potential benefit of lease vs purchase would be avoiding the costs related to maintenance and repair of the asset.
Thirdly, a sale-leaseback transaction may translate into increased financial flexibility for a company allowing better planning of the cash flow. A lease ensures more accurate forecasting of revenue and expenditure, therefore an optimized management of a company’s financial obligations.
Last but not least, the sale-leaseback may help a company getting better credit rating by reducing debt degree and its financial structure becoming healthier, thus gaining access to supplementary funding resources at more advantageous interest rates.
A piece of advice
Before entering into a leaseback transaction, it is important to consider thoroughly the terms and conditions of the contract. It is of paramount importance to understand the financial, legal and tax implications of such arrangement.
The fiscal implications and benefits of the leaseback agreement should be considered in the overall fiscal context of the company.
The leaseback contract should be tailor made to suit the company’s specific needs and objectives. It should be equitable to all parties involved and risks associated thereto, such as: the risk of loss or damage to the leased assets, the risk of bankruptcy of the future lessee or the risk of interest rates fluctuation, should be paid proper attention to.
The contract should also be in line with the all the laws and regulations applicable, including the tax and contractual legislation, as well as the provisions regulating real estate transactions.
Last but not least, it is important to seek advice from a real estate expert in order to evaluate the value of the property and to negotiate the terms of the leaseback contract, including the rent and the maintenance costs.
In conclusion, a sale and leaseback transaction may be a useful financial transaction for both parties if all associated risks are properly considered and if the parties receive proper guidance from legal and real estate experts who may help them reach their goals.