Should you consider sale and leaseback?

By Greg Bell

A sale and leaseback arrangement allows the current owner-occupier of a property to sell without having to vacate. It's a worthwhile option for companies wanting additional cash flow or looking to realign their asset sheet without having to pack up and move. Sale and leaseback also benefits the new owners by guaranteeing them tenants, and in some cases minimising their maintenance responsibilities.

How does sale and leaseback work?

For a number of businesses, leasing a property is more cost-effective than owning. By selling the property, companies realise the asset and benefit from working capital that they can invest in other interests. This is beneficial both to struggling businesses, and those where there are simply better returns on investment available elsewhere.

Both parties must agree to a lease arrangement, which forms a legally binding part of the sale. Most agreements are 15-20 years in length, and the lease period can dictate sale value – with a shorter term lowering the buyer offer due to lack of stability.

Alongside the financial benefits of a property sale, other advantages to the original owner include continuing day-to-day operations undisrupted, agreements that often include set regulations around rent hikes and provision for first refusal when the lease is up for renewal, or should the new landlord choose to sell. Of course, they'll now have to seek permission should they wish to make renovations or other significant changes.

How does sale and leaseback benefit the new owner?

New owners of a sale and leaseback property profit from having an immediate tenant and therefore get return on investment from day one. Often a new commercial property investment comes with a search for new tenants, a negotiation period as well as potentially expensive and time consuming fit out requirements. A pre-arranged, long-term tenant is an attractive proposition.

Having a tenant so keen to remain in situ also suggests that the area is desirable and lucrative, potentially attracting good returns when it comes to selling up.

Furthermore, some lease agreements are set up so that the new tenant pays for maintenance, building insurance and other additional fees. This means the new owner-landlord is guaranteed a fixed rental income, with very few expenses to detract from their overall profit.

Whether you're thinking of buying a new Gold Coast commercial property or looking to sell and leaseback, contact the Ray White Surfers Paradise team for expert advice.

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