SALE and LEASEBACK

Contact Neufeld Legal for commercial leasing legal matters at 403-400-4092 / 905-616-8864 or Chris@NeufeldLegal.com

A Sale and Leaseback is a sophisticated, specialized real estate transaction used by operating businesses to monetize the value of their owned real estate assets while retaining full operational control of the facility. It is fundamentally a strategic financing tool, allowing a company to convert an illiquid asset (the building) into cash, which can then be redeployed into the company’s core, high-growth business operations.

A Sale and Leaseback is a dual-step transaction executed simultaneously at closing:

• Sale: An operating company (Seller-Lessee) sells its commercial property (e.g., manufacturing plant, corporate headquarters, retail location) to a third-party investor (Buyer-Lessor) at market value.

• Leaseback: The Seller-Lessee immediately enters into a long-term lease agreement with the Buyer-Lessor to rent the property back, ensuring zero disruption to its ongoing business operations.

In essence, the transaction shifts the operating company from being the owner-occupier of the real estate to becoming the long-term tenant.

The lease executed in a Sale and Leaseback transaction is almost universally a Triple Net Lease or, frequently, a Bondable Lease (Absolute Triple Net Lease), which transfers virtually all property-related expenses and risks—including maintenance, taxes, insurance, and sometimes structural repairs—onto the tenant (the original seller).

This structure makes the investment highly attractive to the buyer, who acts as a passive capital provider, seeking a stable, predictable, long-term cash flow stream backed by the credit quality of the tenant.

The primary motivation for a company to execute a Sale and Leaseback is capital allocation. The deal allows the company to realize the full, 100% market value of its real estate (as opposed to 60-80% loan-to-value limitations of traditional mortgages).

The cash unlocked can be used for various strategic purposes:

• Growth and Expansion: Funding capital expenditures, new equipment purchases, or market expansion initiatives (e.g., opening new locations).

• Deleveraging: Paying down existing, more expensive corporate debt or removing the real estate mortgage liability from the balance sheet.

• Mergers & Acquisitions (M&A): Providing a source of equity funding for the acquisition of another business.

• Shareholder Distributions: Returning capital to investors or funding stock buybacks.

For knowledgeable and experienced legal representation in negotiating, reviewing and drafting lease agreements, and protecting your business’ legal rights thereunder, contact lease lawyer Christopher Neufeld at 403-400-4092 [Alberta], 905-616-8864 [Ontario] or Chris@NeufeldLegal.com.