What is a sale and leaseback?

CommercialFriday 7 April 2017

If you’ve heard the term ‘sale and leaseback’ in our investment property auction listings, you may be wondering exactly what it means. Here, we take a look at what this attractive transaction model involves.

What is a sale and leaseback

A sale and leaseback describes an arrangement where an owner-occupier of a commercial property sells that property and stays on as a tenant. The leaseback arrangement can be arranged for any length of lease that suits both parties, with annual reviews to keep rent in line with market conditions.

When might a sale and leaseback arrangement occur?

A sale and leaseback may occur when a franchise owner who owns the property and business may be on-selling the business but looking to gain a profit from the sale of the property. In this case, the new business owner may look to continue with a lease at the same site. Often, it’s simply a case of a financing option for the lessee when investment yield and interest rates make it more viable to lease rather than own.

What are the benefits?

One of the main benefits when you buy commercial property with a sale and leaseback arrangement is that you immediately have a tenant providing a rental return on your new property investment. That means no stress about filling a vacant property and no need for incentives as might otherwise be negotiated for new tenants. You know what you’re getting into for the immediate future prior to settlement.

Another benefit of a sale and leaseback is the indication that the business still finds it a profitable area to do business

How do I go about finding the right property with a sale and leaseback?

A great deal on a sale and leaseback will be one where the purchase price reflects that of a vacant property. The Burgess Rawson team in your area can help you to identify and negotiate the terms you’re searching for to ensure the conditions are reasonable and fair.

It’s important to look for the following in a sale and leaseback situation before you make your move at commercial real estate auctions:

Minimum lease terms that provide stability and a suitable return
Rental increases in line with market prices
A bank guarantee, typically of three to six months, to help protect your return.

It’s also important to perform due diligence in ascertaining if the business is successful and thriving, and adjust the terms if there is an element of risk that may be involved.

With the right conditions, a sale and leaseback can be an arrangement that is profitable and hassle-free for both parties. Contact the team at Burgess Rawson today for assistance in securing the ideal commercial property for auction or through private sale to complement your portfolio.