Sale Leaseback

When a seller deeds property to a buyer for a payment, and the buyer simultaneously leases the property back to the seller.

Leaseback, short for sale-and-leaseback, is a financial transaction, where one sells an asset and leases it back for a long-term; therefore, one continues to be able to use the asset but no longer owns it. The transaction is generally done for fixed assets, notably real estate and planes, and the purposes are varied, including financing, accounting, taxing. After purchasing an asset, the owner enters a long-term agreement by which the property is leased back to the seller, at an agreed-to rate. One reason for a leaseback is to transfer ownership to a holding company, while keeping proper track of the ongoing worth and profitability of the asset. Another one is for the seller to raise money by offloading a valuable asset to a buyer who is presumably interested in making a long-term secured investment. Leaseback arrangements are common in the REIT industry. According to Robert Peston, Business Editor for the BBC, one option being considered for dealing with the Subprime mortgage crisis is a sale-and-leaseback of toxic assets. Peston says "a sale-and-leaseback between the banks and the state has two supreme advantages: there's no need to value the poisonous assets; and losses on those stinky assets would be absorbed by the banks in manageable chunks over about 10 years. " Leaseback arrangements are popular in France, the United States, United Kingdom, and throughout Australasia. Leaseback of residential property has been popular in France for more than 30 years, and there are significant tax advantages. Under the scheme, the purchaser may use the property usually between 1 to 8 weeks per year (with a maximum of 6 months per year). The French government encourages the development of leaseback schemes in touristic areas to alleviate shortages in rental accommodation. The government rebates the local VAT, when the property is purchased. A "sale/leaseback" or "sale and leaseback" is a transaction in which the owner of a property sells an asset, typically real estate, and then leases it back from the buyer. In this way the transaction functions as a loan, with payments taking the form of rent. Due to the lack of financing available in today’s market, many American businesses are increasingly turning to sale-and-leasebacks to provide quick capital. In some arrangements, the current lessee will give the option to buy the asset back at the end of the lease. Typically, if the original owner were to buy back the asset, it would take place at the end of the tax year, in case any party were to be audited by the IRS. The leaseback concept has spread to other European countries including Spain and Switzerland. Typical property available are studios, apartments, and villas. They are situated in ski areas, beach resorts, or golf courses. A sale-and-leaseback is typically a commercial real estate transaction in which one party, often a corporation, sells its corporate real estate assets to another party, such as an institutional investor, or a real estate investment trust (REIT), and then leases the property back at a rental rate and lease term that is acceptable to the new investor/landlord. The lease term and rental rate are based on the new investor/landlord's financing costs, the lessee's credit rating, and a market rate of return based on the initial cash investment by the new investor/landlord. The reasons and advantages for a seller/lessee are varied, but the most common are:The advantages for an investor/landlord are:Leaseback is also commonly used in general aviation, with buyers using the scheme to let flight schools and other FBOs use their aircraft. Leaseback is very often used in commercial aviation to essentially take back the cash invested in assets. Airlines, for example, sell aircraft and engines to lessors, banks or other financial institutions who in turn lease the assets back to them. Tax deductions can also be realised by the airline since the asset is no longer owned but leased. Due to the high price of aircraft and engines, especially new, the cash from such a leaseback are used by airlines to improve their financial performance.