Sale Leaseback

This arrangement is basically a property sale, in which the seller agrees to become a tenant in the property after the sale. The lease agreement is normally a net lease, signed prior to the sale of the property and conditioned on the sale.

For the buyers, it offers a good investment since the rental property comes complete with a paying tenant. For the seller, this arrangement frees up capital from their property and offers the tax advantages offered by leasing (which allows businesses to deduct rental payments as a business expense).

For example, Mark bought a prime industrial lot with the intention of building a new site for his company, which was currently leasing space. After a decade, Mark realized that he didn't want to spend the money to develop and build on the lot. So he enters into a sale-leaseback arrangement with a developer, who buys and develops the property. Mark sells the lot to the developer (for a nice profit) and moves as a tenant into the facility specially built by the developer. On the other hand, the developer obtains a good property investment with a long-term tenant.

For more information, please see the Sale-Leaseback article.

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