LEASEBACK FINANCE (SALE & LEASEBACK) (PURCHASE AND LEASE)

A popular method of finance particularly for large specialist investment properties. A typical leaseback arrangement is as follows:


Leaseback financing is the release of capital for use in a business by leasing the required real estate in lieu of ownership. Typical lessors are:


Sale and leaseback finance is a very good method of raising finance where a large company owns land and wishes to raise capital. The company enters into a sale and leaseback agreement with a financier. If the company does not own land, it can enter into a purchase and leaseback agreement with a financier who purchases a suitable site and develops it for the use of the company. Both methods are popular for large development projects such as:


An example is as follows:


THE LEASEBACK DOCUMENT

A typical leaseback document consists of:

The financier agrees to finance the development with a ceiling cost and agrees to grant the lessee company a lease from the date of completion according to the terms and conditions in the annexed draft lease.

A "standard form" lease document adjusted to cover specific terms such as rental reviews, responsibility for outgoings etc.

ADVANTAGES TO THE LESSEE

further finance is not prejudiced by a mortgage.

ADVANTAGES TO THE LESSOR:


It is common to have in the agreement an option for the lessee to buy the premises at the end of the leaseback period. This is usually at market value which should approximate land value. However, it is more likely that the lessee would "roll the agreement over" so that new premises can be built.



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