What to Know About a Sale Leaseback

In this article, you'll learn:

What a sale leaseback is and how it works for businesses.
Financial benefits of sale leasebacks, including debt relief and tax advantages.
Why triple net leases and long-term agreements are ideal for sale leasebacks.
The importance of planning ahead to protect your business's future needs.

Large companies like Disney, FedEx, Home Depot, Microsoft and Walgreens have all taken advantage of the benefits of sale leasebacks, but the benefits of this form of real estate financing aren't just good for Fortune 500 corporations. Businesses of all sizes have the potential to benefit from a sale leaseback if it is structured correctly. Read on to learn more about what sale leasebacks are and how they could help your business.

What Is a Sale Leaseback?

With a sale leaseback, you sell your building to an investor who then immediately enters a lease with you. You remain in the building without interruption but no longer own it.

Why Enter a Sale Leaseback?

There are a number of reasons why you might want to consider a sale leaseback:

Debt relief. The influx of cash that you receive from selling the building can help you to pay off high interest debt.
Sale leasebacks can provide funds for marketing, hiring, increasing inventory and other expenditures without any need to take on added debt.
Tax benefits. In many cases, your company can write off 100% of the lease payments to your new landlord. If you had a mortgage on the property, you would typically only be able to write off the interest.

What's the Appeal for Buyers?

Buyers use sale leasebacks as financial investments. Individuals who purchase commercial real estate for the purposes of investing like the security of having a tenant already in the building from the moment of purchase.

Tips for Success

1. Select a Triple Net Lease

When drafting a lease for a sale leaseback, the triple net lease is typically the best option. With this type of lease, you are responsible for paying for the property taxes, insurance and maintenance for the building as well as rent. This allows you to maintain some level of control and can reduce the risk of disruptions. For the buyer, this type of lease provides a sense of security and makes managing the building easier.

2. Opt for a Long Term

In order for buyers to feel comfortable with the transaction, you'll need to be willing to sign a lease for a long period of time, usually 10 to 20 years. The longer the term is, the more attractive the deal will be to prospective buyers.

3. Consider the Option Early

Many businesses make the mistake of attempting to use sale leasebacks as a last resort when they enter times of financial hardship. Unfortunately, the financial health of the company is one of the main criteria that investors use to evaluate whether or not to take on a sales leaseback. As a result, it's best to consider this form of financing before you're in a crisis situation.

4. Plan for the Future

Because you will need to sign a long-term lease, it is important that you take steps to protect your company for the future. Make sure that the lease provides some provision for subleasing or assigning in case your business needs change dramatically, and you can no longer use all or some of the space. If you foresee a period of growth ahead, retain the right to remodel and expand the building as needed.