Transactions
Sale-and-lease-back as a financing instrument
Releasing capital without giving up the location. Lease term, covenant strength and alternative use drive the price.
For owner-occupiers, their own property is often the largest tied-up asset. Sale-and-lease-back can release this capital without relocating operations. It is not a distress instrument, even if it was long perceived as one.
Note: the following provides a general overview of possible transaction structures and related questions. It does not constitute legal or tax advice. The specific legal and tax consequences should be reviewed for each transaction by the relevant professional advisers.
What drives the price
Key factors are the term and drafting of the leaseback, the tenant's credit standing and the property's suitability for alternative use. A long, indexed lease with a strong occupier is valued differently from a shorter agreement with break rights.
Buy-back rights are a negotiation topic in their own right. Buyers reflect them in pricing because they affect exit planning. The drafting and effect of such rights depend on the contract and should be accompanied legally.
Assessing accounting and tax effects realistically
Depending on the accounting standard and the structure, sale-and-lease-back can have different accounting, tax and financial consequences. A general balance-sheet improvement cannot be assumed.
These effects should be reviewed before implementation with the relevant accounting, tax and legal advisers. We have seen cases where the expected ratio effect turned out considerably smaller than assumed — the economic logic of the transaction carried the decision, not the balance sheet.
When we advise against it
Where the location no longer fits the business in the medium term. That creates a long lease commitment whose later unwinding can be economically expensive.
And where the company is in transition: buyers scrutinise tenant credit closely. A restructuring during marketing can weigh on the achievable multiple more than the fast liquidity is worth.
In short
Sale-and-lease-back is a financing decision with a long commitment. Settle the location plan first, then negotiate terms — accounting and tax questions belong with the professional advisers.
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Legal and tax notice
The information on this website is provided for general information on real estate, financing and corporate transactions only. It does not constitute legal, tax or other individual professional advice and cannot replace case-specific advice from suitably qualified lawyers, tax advisers or other professionals.
The legal and tax consequences of a transaction depend in particular on its specific structure, the parties involved, existing contracts and the applicable legal and tax framework. Such questions should therefore be reviewed individually by the relevant professional advisers before any decision is taken.
Within the content presented on this website, Fox Capital does not provide legal or tax advice.