February/March 2009 / Features
Sale Leaseback Transactions for Cash
Companies in need of cash are selling property they own and occupy, reinvesting the sale profits in their businesses and leasing the property back from the new owner. For the new landlord, the deal is an opportunity to earn income while building equity in a new investment.
The “seller-tenant” in a sale leaseback transaction is fundamentally different than a tenant in a traditional lease transaction. In a traditional lease the tenant has no prior relationship with the property it will occupy. In a sale-leaseback, the seller-tenant had control over the property as the owner. Because of its prior relationship, the seller-tenant may have liability for events occurring prior to closing and lease commencement. Similarly, while a traditional seller does not have any continuing relationship with the property, the seller-tenant’s relationship continues as long as it continues to occupy the property as a tenant.
The sale of the property provides cash to the seller-tenant to ensure “true sale” treatment for the sale leaseback, which is in the best interests of both seller-tenant and buyer-landlord. The lease must reflect the parties’ agreement that the lease is a “true lease” and not a financing transaction. Both seller-tenant and buyer-landlord should consult their accountants to evaluate the costs as well as the liability of the parties for certain problems under the lease.