Sale and Leaseback Explained
Written by Scott Jones, founder of CommercialPropertyKiln · Last updated
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Sale and leaseback lets an occupier release the capital tied up in their premises while carrying on trading from them. For an investor, it creates an instant income-producing asset.
How it works
The owner-occupier sells the property to an investor and simultaneously takes a lease back, usually a long lease on full repairing and insuring terms at a market rent. The seller gets a capital lump sum and stays in occupation; the buyer gets a tenanted investment with a known occupier.
Why each side does it
- The seller frees up capital to reinvest in the business, removes the asset from the balance sheet, and turns ownership cost into a tax-deductible rent.
- The buyer gets immediate income and a covenant they can assess, often on a long lease, though the strength of that income depends entirely on the seller-tenant's business.
The investor's view
The key risk is covenant: your income depends on the seller continuing to trade and pay rent. Price the deal for the strength of that covenant and the length and terms of the lease. A long lease to a strong operator is valuable; a short lease to a weak one is not.
Getting it right
Sale and leaseback has capital gains and, potentially, VAT and SDLT angles for both sides. Take advice, and see deal structures and the hold vs sell vs sale-and-leaseback decision.
How does a sale and leaseback work?
An owner-occupier sells the property to an investor and takes a lease back, releasing capital while staying in occupation.
What is the main risk to the buyer?
The income depends entirely on the seller-tenant continuing to trade and pay rent, so the covenant is key.