The Advantages and Disadvantages of Sale and Leaseback for Commercial Property

The Advantages and Disadvantages of Sale and Leaseback for Commercial Property

Over recent years, new technology combined with changing consumer habits have altered the commercial property space. As a result, businesses are increasingly changing their approach to commercial property assets. This means that sale and leaseback for commercial property is becoming an attractive and rewarding option for many companies.

If you own a business and you're considering kickstarting the sale and leaseback process, there are several advantages and disadvantages you should consider:

What Does the Sale and Leaseback of Commercial Property Mean?

When a business sells a commercial property that they own and use, sale and leaseback allows them to continue using the building in the same capacity, but as a tenant for the property's new owner. In other words, sale and leaseback is when a business sells its commercial space and enters into a lease agreement with the new owner. The new owner becomes their landlord.

Sale and leaseback tends to work best for properties that are used by one single business – usually as office space, retail or industrial – instead of multiple businesses.

Sale and Leaseback Advantages

Sale and leaseback offers some great advantages for businesses. Here are some of them:

  • If the seller has debts to clear, sale and leaseback can free up much-needed cash. Sale and leaseback of commercial property can work out better than taking a loan, because it cannot lead to more debt being accrued.
  • The seller won't lose access to the property – they can still use it, but they won't need to worry about the financial risks associated with property ownership.
  • Sale and leaseback will clear any debt attached to the property, helping to improve liquidity.
  • Rental payments are usually considered tax-deductible business expenses.
  • In the age of e-commerce, it's typically a profitable business decision to liquidise assets tied up in property and re-invest the money elsewhere.

Sale and Leaseback Disadvantages

For any business, it's important to make informed decisions when dealing with high-value assets such as property. Sale and leaseback of commercial property is no different. Here are some of the negative ways sale and leaseback could affect your business:

  • If the value of the property rises, the previous owner will not be able to capitalise on the appreciation. If the value of your commercial property looks set to rise, perhaps due to local regeneration or market activity, it might be a good idea to hold off.
  • If the business is sold, the property can no longer be considered as a sellable asset and has no bearing on the company's value.
  • If an agreement cannot be reached with the landlord at the end of the lease period, the business might need to move elsewhere. This risk can be mitigated by including buy-back or renewal options in the original sale and leaseback agreement.
  • The business may lose a degree of control and flexibility when it comes to how they use the property.

Sale and leaseback for commercial property can be a profitable decision for some businesses. For others, it's simply unfeasible.

If you need to sell a commercial property urgently, but sale and leaseback isn't the best decision for you, contact our dedicated team at Zoom Property Buyer to discuss a fast sale. We can offer you a great price for your commercial property and take it off your hands quickly, without the hassle of dealing with expensive agents or solicitors.

Give us a call on 0333 880 4362 or complete our online form to request a call from our team within 24 hours.

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By MikeL | October 29th, 2020 | | Leave a comment

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