What is sale and leaseback?

Sale and leaseback is a transaction consisting of two parts: the sale of a real property and the lease. The owner sells the property to another entity and executes a rental contract for the same premises. The seller still operates at the same location and within the same scope. The agreement often guarantees a pre-emption right to the seller following the lease period.

Leaseback benefits:

1. Retaining the same seat

Once the real property sales transaction is closed, the company does not need to seek a new office. Instead, it becomes a tenant of the same premises it has been using before the transaction.

2. Obtaining funds as a result of leaseback transaction

As a result of the sale and leaseback transaction, the seller acquires funds that can be spent in any manner they see fit. It often opens up the opportunity to invest in the core business to ensure rapid company growth or repayment of more expensive liabilities, buying another real property or dividend distribution. The seller regains their capital that had been frozen in the developed real property and the funds acquired are often greater than the previously invested amount.

3. Protection against rising interest rates

In April 2022, the Polish Monetary Policy Council once again increased all interest rates. As interest rates continue to raise, WIBOR is also increasing, which entails the increase of variable interest rates on loans. In order to stop the inflationary spiral, interest rates will have to be increased further. A persistent two-digit inflation in 2022 is certain. With the burden of interest liabilities, companies will experience a significant increase in financing costs. The sale of the encumbered real estate (repayment of the liability) and the leaseback may be a salvation for them.

4. Tax deductible expense

By executing a rental contract, the company selling the real property agrees to pay monthly fees. Note that monthly rent is a tax deductible expense deducted from the income tax. The rental contract stipulates the division of administrative or service costs – these may be paid both by the tenant and the lessor.

Sale and leaseback transactions are a popular and provide a form of obtaining capital for SMEs that has been successfuly used in Western Europe for years. The process is becoming more and more popular also in Poland. According to experts, leaseback is preferred by owners of office buildings, shopping centers, warehouses, production lines or real property intended for tourism.

INWI takes an active part in the sale and leaseback contract execution processes.

Please contact us for more information.