Sale and leaseback is an arrangement in which one party sells a property to a buyer and the buyer immediately leases the property back to the seller. This arrangement allows the initial buyer to have full use of the asset without tying up money in the property. Tax benefits sometimes apply to these transactions.
Advantages
* Negates the need to raise potentially more expensive
capital in the marketplace to finance expansion etc.
* Leasing normally represents 100% financing whereas
a mortgage company will not provide more than say two-thirds of the value
of a project.
Disadvantages
* Lessee acts much as the owner of the property rather
than as a tenant paying for all repairs, maintenance, insurance and property
taxes during the currency of the lease.
* Improvements to the property and any increase
in land value inure to the benefit of the landlord at the expiration of
the lease.
