“Looking to Sell Your Commercial Property? Consider a Sale-Leaseback!”

– A sale-leaseback transaction allows the seller to raise cash from the property while continuing to operate it as the buyer’s tenant.
– Sellers with significant equity in the property can use the cash from the sale for current operations, expansion, or alternative investments.
– The sale can be cheaper than refinancing, and can improve the seller’s balance sheet if existing mortgage debt is paid off.
– The buyer acquires the risk of property ownership but also gains control over occupancy, tax benefits from depreciation, and potential appreciation in value.
– The lease provides the buyer with a long-term source of rental income, with the seller being responsible for insurance, maintenance, taxes, and operating expenses for the property. – A transaction will qualify as a sale if there is a written sales contract with a seller who has legal title and control over the property, and if title and control are transferred to the buyer upon exchange of consideration.
– A lease will qualify as an operating lease if it does not include provisions for the transfer of ownership to the tenant at lease expiration, an option for the tenant to repurchase the property, a lease term covering a major part of the property’s remaining economic life, total consideration paid to the landlord representing substantially all of the property’s fair value, or a situation where the property has no alternative use to the landlord at the end of the lease term. – A written purchase and sale agreement is essential for a sale-leaseback agreement.
– The agreement should affirm the intent of complete transfer of legal and equitable title to the buyer at closing.
– The lease should be reported as a true operating lease and not a finance lease.
– Certain lease provisions, such as construction commitments and variable rent payments, will require additional scrutiny.
– Structuring a sale-leaseback can be complex and should be examined with professionals to avoid unintended financial consequences.

Consider a Sale-Leaseback When Marketing Commercial Property