Sale and Leaseback –
the key facts at a glance

Key facts at a glance:

• Often simply called "leaseback".

• In this form of leasing, a company sells assets such as real estate, vehicles, or machinery to a leasing provider and immediately leases them back for continued use.

• Liquidity becomes available relatively quickly and usually independently of creditworthiness. Hidden reserves can be unlocked. However, the financing is often cost-intensive in the long run due to leasing fees.

• After the lease agreement expires, the leasing company typically offers the option to buy back the assets.

What Is Sale and Leaseback?

Sale and leaseback, often simply called "leaseback", describes a special form of leasing in which a lessee sells their own fixed assets to a lessor, only to immediately lease them back for continued use. The sale results in a short-term gain in liquidity.

If the respective asset is largely depreciated on the balance sheet, hidden reserves can also be unlocked. At the same time, the leaseback ensures uninterrupted use of the sold assets in day-to-day operations. Sale and leaseback is also referred to as a "leaseback sale".

In addition to the purchase agreement, a contract is concluded between both parties that sets out the rental costs and the lease term. While, legally speaking, the leased object becomes the property of the lessor upon transfer, the liability risk for maintenance or material defects typically remains with the lessee.

Who Is Sale and Leaseback Financing Suitable For?

In principle, sale and leaseback is suitable for any company that owns sufficient fixed assets and is willing to sell them. Applicable to a wide range of capital goods, sale and leaseback is particularly recommended in the area of real estate or industrial machinery due to the value stability of these objects.

A sale and leaseback arrangement can provide support in various company phases such as succession or restructuring. In these situations, the financing model can provide the necessary funds when an additional bank loan cannot or should not be taken out.

The leaseback sale is usually independent of creditworthiness and can even have a positive effect on credit rating. This is because by unlocking hidden reserves, the equity ratio typically increases.

In the long run, however, the financing is relatively expensive, as with other types of leasing. In addition, the purchase price for the respective object is determined by its market value. There is, however, an advantage from a tax perspective: the leasing payments can partly be offset as business expenses.

What Happens at the End of the Sale and Leaseback?

After the lease agreement expires, companies have the option, among others, to buy back the leased assets. Several factors determine the agreed buyback price. The duration of the contract and the interest paid over the leasing period are particularly decisive for the price level. The buyback price is also determined by the type of leased assets themselves. For example, a specialised vehicle typically has a lower rate of depreciation than a computer.