- Project plans
- Project activities
- Legislation and standards
- Industry context
- Specialist wikis
Last edited 17 Dec 2020
The term 'leaseback' (also known as sale-and-leaseback) refers to a financial arrangement in which the party selling an asset (usually property) leases it back from the purchaser. This is generally a long-term arrangement, allowing them to use the asset but no longer owning it. The seller of the asset becomes the lessee, and the purchaser becomes the lessor.
Companies often raise capital by taking up debt and giving up equity, in order to grow the business. Leaseback is neither debt nor equity; the company doesn’t increase its debt load but gains access to capital through the sale of assets, while not having capital tied up in the asset. Tax benefits can sometimes be gained through the use of leasebacks.
The arrangement is rather like that of a pawnshop in that a company exchanges a valuable asset for a certain amount of money. The difference is that there is no expectation that the asset will be bought back by the company.
Builders and construction companies with high fixed assets are common users of leaseback arrangements. They can be useful when a company needs to use the capital invested in an asset for other investments, but where they still require the asset in order to operate. The advantage to the lessor is that they receive a guaranteed lease with stable payments for a specified period of time.
Other disadvantages include the fact that the original owner loses any further interest in the growth of the asset’s value. In the case of property, the rent is also likely to be revised upwards at regular intervals, so what may have appeared to be a cheap source of funding in the short term, can prove to be expensive over the long term.
To avoid this drawback, an off-balance sheet version of leasebacks can be used. A 50-50 joint-owned company is set up which borrows the bulk of the capital to buy the assets, granting the vendor a lease in the normal way. Via its half-ownership of the joint company, the original owner retains an interest in the performance of the properties in the future.
 Find out more
 Related articles on Designing Buildings Wiki
- Construction loan.
- Discounted cash flow.
- Equity and loan capital.
- Funding options.
- Joint venture.
- Mezzanine finance.
- Partnering and joint ventures for construction.
- Private Finance Initiative
- Property development finance.
- Real Estate Investment Trusts.
- Special purpose vehicles.
- Speculative construction.
Featured articles and news
When did they start and how many are there?
Roadmap to guide professionals in using smart technology.
Campaigning for buildings of all periods.
Meaning, understanding and implementation.
Advancing sustainable and regenerative project management.
Promised to be pragmatic and practical guidance.
Whilst replacement maybe preferred, its not always possible.
Dealing with draughts and reducing heat loss.
Managing Partner at Onyx and third gen project manager.
Expectation types, management and performance gaps.
Appointments, re-appointments and six changes a year.
New ways to manage the housing crisis.
Consortium seeks signatories for open letter by February 29.
From climate to cost to cold bridges and design flexibility.
In a changing world at the APM PM SIG conference.
The glass product that opened up new possibilities.