As we emerge from lockdown and businesses consider the options open to them to raise cash at a time when an injection of cash is badly needed for businesses to continue to operate, a sale and leaseback could be a solution for a business that owns its own premises. A sale and leaseback is a way to raise cash as an alternative to going down the route of raising funds through bank borrowing or other types of finance.
One major advantage is that the business can continue to operate from its existing premises providing continuity for customers, suppliers and staff.
Sale and leaseback transactions are a particularly useful means of raising cash for businesses in the retail and logistic sectors. These sectors are those which, post lockdown, cash will most likely be required for negative or positive reasons.
The most typical type of sale and leaseback is where the Seller sells the freehold of its operational premises and takes back an open market rental lease for a term of between 10 and 20 years subject to rent reviews either on an open market or an index linked basis. These purchasing opportunities are attractive to cash rich investors since they carry the advantage of having an income stream from the rent payable.
So far as the Seller is concerned, while it might be a wrench to part with freehold ownership of an operating site this could be mitigated by including a right to buy back the freehold in the future or by including a right of first refusal in the event that the Buyer wishes to sell on at some time in the future.
Sale and leaseback arrangements will need careful consideration with the operating company’s accountants to determine the full effect on the company’s balance sheet. The precise terms of the deal will need to be thought through carefully and captured in the transfer and leaseback documents.
If you are an owner-occupier who would like to discuss your options or if you are an investor looking at opportunities please contact us for a preliminary discussion. In the first instance please contact Elizabeth Deyong on e.deyong@barrellison.co.uk.
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