As a result, the entrepreneur becomes the lessee of the sold real estate, paying the rent to its new owner and incurring related maintenance costs, but gaining significant capital that can serve any purpose – both financing current operations and investments – without losing the right to use such real estate.
Model 1 – sale & leaseback with buyback guaranteed
The most typical model which involves the sale & leaseback of real estate, allowing for its buyback following the lease term. Lease fees payable by the entrepreneur to the financial institution include not only financing and profit costs, but also – as a rule – some part of the real estate value repaid by the entrepreneur. If the entrepreneur decides to make a buyback following the lease term, the repayment value is included in the buyback price, reducing the final real estate price.
Model 2 – sale & leaseback with buyback not guaranteed
A less common model providing for no guarantee of buyback of real estate sold and leased back to the entrepreneur. Rental fees payable by the entrepreneur include solely costs relating to obtaining financing and covering the profit of the financial institution that purchased the real estate. The entrepreneur therefore incurs lower costs, in return obtaining solely the right to use the real estate for the term of the contract, however, having no guarantee of buyback of the real estate from the financial institution following that term.
Sale & leaseback benefits:
- Acquiring, as a rule, a less expensive and larger amount of capital for investments, compared to a loan secured by a mortgage (usually the funds obtained from the sale of real estate are comparable to its value);
- Real estate may subsequently be used for the cost of rent payable to the financial institution;
- Acquiring, as a rule, the right to buy the real estate back in the future, following the lease term;
- Possible refinancing of existing investments – repayment of less favourable loans or credits.
Owing to the above advantages, the number of sale & leaseback transactions in the real estate market is constantly growing, having become especially popular during the crisis. This is due to the efforts of entrepreneurs to seek solutions to release new funds.
How can we assist?
Kochański & Partners offer comprehensive assistance in sale & leaseback transactions, beginning from selecting the financing institution, up to delivering complex legal advice on the transaction (in particular the preparation and negotiation of relevant transaction documents).