Leaseback

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Leaseback

Leaseback, short for sale-and-leaseback, is a financial transaction

Financial transaction

Financial transaction is an event or condition under the contract between a buyer and a seller to exchange an asset for payment. In accounting, it is recognized by an entry in the books of account....
, where one sells an asset and leases it back for a long-term: thus one continues to be able to use the asset, but no longer owns it.

This is generally done for fixed assets, notably real estate

Real estate

Real estate is a law term that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is fixed in location. and planes, and the purposes are varied, but include financing, accounting, and tax reasons.

r purchasing an asset, the owner enters a long-term agreement by which the property is leased back to the seller, at an agreed-to rate.

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Encyclopedia

Leaseback, short for sale-and-leaseback, is a financial transaction

Financial transaction

Real estate

Leaseback arrangements

After purchasing an asset, the owner enters a long-term agreement by which the property is leased back to the seller, at an agreed-to rate. One reason for a leaseback is to transfer ownership to a holding company

Holding company

A holding company is a company that owns other companies' outstanding stock stock. It usually refers to a company which does not produce goods or services itself, rather its only purpose is owning shares of other companies....
while keeping proper track of the ongoing worth and profitability of the asset. Another is for the seller to raise money by offloading a valuable asset to a buyer that is presumably interested in making a long-term secured investment. Sale Leaseback arrangements are common in the REIT industry.

Possible solution to toxic banking assets

According to Robert Peston, Business Editor for the BBC, one option being considered for dealing with the Subprime mortgage crisis

Subprime mortgage crisis

The subprime mortgage crisis is an ongoing financial crisis triggered by a dramatic rise in mortgage delinquency and foreclosures in the United States, with major adverse consequences for banks and financial markets around the globe....
is a sale-and-leaseback of toxic assets. Peston says "a sale-and-leaseback between the banks and the state has two supreme advantages: there's no need to value the poisonous assets; and losses on those stinky assets would be absorbed by the banks in manageable chunks over about 10 years."

Real estate

Leaseback arrangements are popular in France, the United States and the United Kingdom.

France

The seller is a promoter working with a property management

Property management

Property management is the operation of commercial, industrial and/or residential real estate. This is much akin to the role of management in any business....
company, Typically the initial lease is for 9 to 11 years (In France). The net rental yields are usually in the range 3 to 6% per annum

Annum

Annum is one form of the Latin noun meaning year, not a form normally used for derivatives in modern languages: the accusative case Grammatical number of the second declension grammatical gender noun annus , anni ....
(based on the purchase price). The properties in these arrangements may be residential units, business residence, student residences, holiday ski, beach and golf resorts, or almost any other type of commercial real estate in France.

Leaseback of residential property has been popular in France

France

France , officially the French Republic , is a country whose Metropolitan France is located in Western Europe and that also comprises various Overseas departments and territories of France....
for many years and there are significant tax advantages. Under the scheme the purchaser may use the property usually between 1 to 8 weeks per year (with a maximum of 6 months per year). The French government encourages the development of leaseback schemes in touristic areas to alleviate shortages in rental accommodation. PURE International, www.pureintl.com specialise in the sale of Leaseback opportunities. The French government rebates the local tax, called VAT, when the property is purchased. Currently the VAT rate is 19.6%. In France, a leaseback property typically has to remain in the leaseback scheme for a period of 9-11 years, depending on the specific property and program. The property should be kept at least 15 years for the sale to be capital gain tax free. For a full VAT rebate you should keep it for 20 years. If you sell it after 11 years then you will need to pay back 9/20 of the VAT.

United Kingdom

United States

Other countries

The leaseback concept has spread to other European countries including Spain

Spain

Spain or the Kingdom of Spain , is a country located in Southern Europe on the Iberian Peninsula.The Spanish constitution does not establish any official denomination of the country, even though Espa?a , Estado espa?ol and Naci?n espa?ola are used interchangeably....
and Switzerland

Switzerland

Switzerland is a landlocked Swiss Alps country of roughly 7.7 million people in Western Europe with an area of 41,285 km?. Switzerland is a federal republic consisting of 26 states called Cantons of Switzerland....
. Typical property available are studios, apartments and villas. They are situated in ski

Ski

A ski is a long, flat device worn on the feet designed to help the wearer slide smoothly over snow. Originally intended as an aid to travel in snowy regions, they are now primarily used for recreational and sporting purposes....
areas, beach resorts or golf course

Golf course

A golf course consists of a series of holes, each consisting of a teeing ground, Golf course#Fairway and rough, rough and other hazards, and a green with a pin and cup, all designed for the game of golf....
s.

Commercial Real Estate

A sale-and-leaseback is typically a commercial real estate

Real estate

Real estate is a law term that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is fixed in location. transaction in which one party, often a corporation

Corporation

A corporation is a legal entity separate from the persons that form it. It is a legal entity owned by individual stockholders. In British tradition it is the term designating a body corporate, where it can be either a corporation sole or a corporation aggregate ....
, sells its corporate real estate

Real estate

Real estate is a law term that encompasses land along with anything permanently affixed to the land, such as buildings, specifically property that is fixed in location. assets to another party, such as an institutional investor

Institutional investor

Institutional investors are organizations which pool large sums of money and invest those sums in companies. They include banks, insurance companies, retirement or pension funds, hedge funds and mutual funds....
, or a real estate investment trust (reit) , and then leases the property back at a rental rate and lease

Lease

A lease is a legal document, but can be an speech communication arrangement, which confers a right on one person to possession property ownership to another person to the exclusion of the owner landlord....
term that is acceptable to the new investor

Investor

An investor is any party that makes an investment.The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase stock or Bond Security for financial gain in exchange for funding an expanding company....
/landlord

Landlord

Landlord is the owner of a house, apartment, condominium, or real estate which is Rentinged or leased to an individual or business, who is called a Leasehold estate ....
.

In a sale-and-leaseback, the lease

Lease

Credit rating

A credit rating assesses the credit worthiness of an individual, corporation, or even a country. It is an evaluation made by credit bureaus of a borrower?s overall credit history....
, and a market rate of return

Rate of return

In finance, rate of return , also known as return on investment , rate of profit or sometimes just return, is the ratio of money gained or lost on an investment relative to the amount of money invested....
based on the initial cash investment

Investment

Investment or investing is a term with several closely-related meanings in business management, finance and economics, related to Saving or deferring Consumption ....
by the new investor

Investor

Landlord

Landlord is the owner of a house, apartment, condominium, or real estate which is Rentinged or leased to an individual or business, who is called a Leasehold estate ....
. The reasons and advantages for doing a sale-and-leaseback by a seller/lessee are varied, but the most common are:

Help finance
Finance

The field of finance refers to the concepts of time, money and risk and how they are interrelated. Banks are the main facilitators of funding through the provision of credit, although private equity, mutual funds, hedge funds, and other organizations have become important....
expansion of the existing business, purchase new plant equipment, or invest in new business opportunities.
Help pay down debt
Debt

Debt is that which is owed; usually referencing assets owed, but the term can cover other obligations. In the case of assets, debt is a means of using future purchasing power in the present before a summation has been earned....
and improve the company's balance sheet
Balance sheet

In financial accounting, a balance sheet or statement of financial position is a summary of a person's or organization's balances. Assets, liabilities and ownership equity are listed as of a specific date, such as the end of its financial year....
.
Help reduce the seller/lessee's business income tax liability
Liability

In the most general sense, a liability is anything that is a wikt:hindrance, or puts individuals at a disadvantage. It can also be used as a slang term to describe someone that puts a team or group of which they are a member at a disadvantage, and would thus be better off without....
caused by the appreciation
Appreciation

Appreciation is a term used in accounting relating to the increase in value of an asset. In this sense it is the reverse of depreciation, which measures the fall in value of assets over their normal life-time....
in value (land only) of its corporate real estate assets. In addition, the seller/lessee as a tenant can deduct all rent
Rent

Rent may refer to:*Renting, a system of payment for the temporary use of something owned by someone else; the payments for such use are typically referred to as "rent"...
payments as a legitimate business expense
Expense

In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs....
on its annual tax returns.

The advantages of doing a sale-and-leaseback by an investor

Investor

Landlord

Landlord is the owner of a house, apartment, condominium, or real estate which is Rentinged or leased to an individual or business, who is called a Leasehold estate ....
are:

Fair return on the investment
Investment

Investment or investing is a term with several closely-related meanings in business management, finance and economics, related to Saving or deferring Consumption ....
in the form of rent
Rent

Rent may refer to:*Renting, a system of payment for the temporary use of something owned by someone else; the payments for such use are typically referred to as "rent"...
during the lease
Lease

A lease is a legal document, but can be an speech communication arrangement, which confers a right on one person to possession property ownership to another person to the exclusion of the owner landlord....
term, and ownership of a depreciable asset
Asset

In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
already occupied by a reliable tenant.
Long term fully leased asset
Asset

In business and accounting, assets are everything of value that is owned by a person or company. It is a claim on the property your income of a borrower....
with a guaranteed income
Income

Income, refers to consumption opportunity gained by an entity within a specified time frame, which is generally expressed in monetary terms. However, for households and individuals, "income is the sum of all the wages, salaries, profits, interests payments, rents and other forms of earnings received......
stream.
For income tax
Tax

To tax is to impose a financial charge or other levy upon an individual or Legal person by a state or the functional equivalent of a state.Taxes are also imposed by many subnational entity....
purposes the investor
Investor

An investor is any party that makes an investment.The term has taken on a specific meaning in finance to describe the particular types of people and companies that regularly purchase stock or Bond Security for financial gain in exchange for funding an expanding company....
/landlord
Landlord

Landlord is the owner of a house, apartment, condominium, or real estate which is Rentinged or leased to an individual or business, who is called a Leasehold estate ....
can take an expense
Expense

In common usage, an expense or expenditure is an outflow of money to another person or group to pay for an item or service, or for a category of costs....
deduction for an investment
Investment

Investment or investing is a term with several closely-related meanings in business management, finance and economics, related to Saving or deferring Consumption ....
in a depreciable property to allow for the recovery of the cost of the investment
Investment

Investment or investing is a term with several closely-related meanings in business management, finance and economics, related to Saving or deferring Consumption ....
.

When considering to do a sale-and-leaseback transaction always consult with a qualified commercial real estate broker

Real estate broker

A real estate broker is a term in the United States and Canada which describes a party who acts as an intermediary between sellers and buyers of real estate and attempts to find sellers who wish to sell and buyers who wish to buy....
, attorney

Lawyer

A lawyer, according to Black's Law Dictionary, is "a person learned in the law; as an Attorney at law, counsel or solicitor; a person licensed to practice fraud." Law is the system of rules of conduct established by the sovereign government of a society to correct wrongs, maintain stability, and deliver justice....
, and accountant

Accountant

An accountant is a practitioner of accountancy, which is the measurement, disclosure or provision of assurance about financial information that helps managers, investors, tax authorities and other decision makers make resource allocation decisions....
.

Aviation

Leaseback is also commonly used in general aviation

General aviation

General aviation is one of two categories of civil aviation. It refers to all flights other than military aviation and scheduled air transport flights, both private aviation and commercial aviation....
, with buyers using the scheme to let flight schools and other FBO

Fixed base operator

In the aviation industry, a fixed base operator , or FBO, is a service center at an airport that may be a private enterprise or may be a department of the municipality that the airport serves....
s use their aircraft.