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:
Aviation[edit]
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. Due to the high price of aircraft and engines, especially new, the cash from such a leaseback is used by airlines to improve their financial performance.
Industrial equipment[edit]
The leaseback concept has also spread to industry, mostly for industrial equipment. A long-standing example is the railroad industry, in which locomotives and other rolling stock are purchased on behalf of the railroad by an 'equipment trust' set up by a bank, financing the original purchase cost with the lease payments. A company sells some of its equipment to a lessor, such as a bank or another financial institution, which leases the equipment back to the company. Thus the company is no longer the owner of the equipment but keeps the use of it. This commercial transaction allows two companies to have at their immediate disposal the cash to make investments in new business opportunities.