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A sale and leaseback is where a business sells an asset while simultaneously agreeing to lease it back on a long-term basis, allowing the seller to release capital from their assets while retaining operational control and use. Originally developed for real estate, sale and leasebacks are now used across multiple asset classes, from property to aircraft and equipment.
These transactions are particularly attractive in the current market, where borrowing rates are higher, loans less accessible and where businesses seek to optimise their balance sheets while maintaining operational stability.
Sale and leaseback often proves attractive when :-
The seller has reasons to stay in a property - such as a long and highly established presence in the property which is important to retain, seller wants to minimise disruption and flexibility to negotiate favorable terms possibly including renewal/purchase rights
Traditional lending is unavailable or too expensive - offers an alternative source of capital
The seller wants to avoid additional debt - improves balance sheet position
Property values are high but yield requirements are low - maximizing capital release
Operational flexibility needs to be maintained - business continues as usual
Tax efficiency is a key driver - can offer advantages through tax deductible payments
Most commonly used for:
Office buildings - particularly headquarters or major operational sites
Retail premises - from single units to entire portfolios
Industrial units - including manufacturing facilities and processing plants
Warehouses - especially distribution centers and logistics facilities
Hotels - often combined with management agreements
Healthcare facilities - including hospitals and care homes
Sales and leasebacks are less common with residential property but are increasing in specific sectors :-
Build to Rent developments - purpose-built residential rental schemes.
Care homes - operational healthcare properties.
Retirement living - specialist accommodation with care provisions.
Social housing projects - local authority or housing association stock.
Mixed-use developments - such as retail/residential or office/residential schemes.
Before choosing sale and leaseback, businesses should consider:
Traditional commercial mortgages - typically lower cost but require debt on balance sheet
Corporate bonds or other debt instruments - may offer better terms but require strong credit rating
Raise money by issuing shares - avoids debt but dilutes existing shareholders.
Asset-based borrowing - can be more flexible but often more expensive
Ongoing payment obligations - long-term financial commitment
Reduced flexibility for modifications - requires lessor consent
Impact on future borrowing capacity - long-term lease commitments
Future payment reviews and market changes - possible cost increases
Lease constraints on operational changes - reduced flexibility
Potential impact on credit rating - treatment of lease obligations
End of lease considerations - replacement or renegotiation costs
Our large and very experienced property team provides comprehensive support for both buyers and sellers including:
Structuring the transaction - optimising terms for your needs
Negotiating terms - achieving best commercial outcome
Drafting and reviewing documentation
For a confidential discussion about your sale and leaseback requirements, please do contact us.
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