leaseback

Leaseback, commonly called a sale-and-leaseback, is a financial arrangement in which an entity that owns an asset sells it to a buyer and immediately leases it back from the purchaser. This allows the seller to monetize the asset while continuing to use it in operations. The arrangement is used for real estate, equipment, fleets, and other long‑lived assets.

In a sale-and-leaseback, ownership transfers to the buyer, and a long-term lease is established with the seller as tenant. The lease can be structured as an operating lease or a finance lease depending on accounting rules and the relative transfer of risks and rewards, which in turn affects financial reporting.

Process: Parties conduct valuation, negotiate price, lease terms (rent, term, escalations, maintenance, insurance), and options to renew or purchase at end, along with any regulatory approvals. The transaction typically involves ongoing maintenance responsibilities, risk allocation, and coordination of title transfer and funding.

Uses and motivations: Companies pursue sale-and-leasebacks to unlock capital, improve liquidity, fund expansion or debt reduction, and monetize non-core assets. Tax considerations, regulatory context, and accounting treatment influence the decision and structuring.

Accounting and financial considerations: Accounting rules determine how the transaction is classified and presented, including whether the lease is treated as operating or finance. Modern standards generally require recognizing lease liabilities and corresponding right-of-use assets, which can affect balance sheets and leverage metrics.

Risks and criticisms: The arrangement can lock a company into long rent obligations, reduce control over the asset, and increase total long-term cost if rents rise. Counterparty risk, market conditions, and restrictive lease covenants are additional considerations.