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At its most basic level a sale and leaseback transaction involves the sale by an entity of some or all of its real property in return for a cash lump sum. The properties that are still required by the entity to operate its business are simultaneously leased back to it.
The entity that purchases the property will typically buy the property through a special purpose vehicle (SPV). If necessary, it will enter into financing arrangements to purchase the property.
In a straightforward sale and leaseback, the property-owning entity will sell the property to a third party while retaining the use of the property through the leaseback mechanism. This enables it to release capital and is often the main reason for entering into a sale and leaseback. Other advantages for each party to the sale and leaseback include:
transfer of real estate risks—the property owning entity/seller transfers the risks associated with owning real estate and outsources the management of the property to another party
leaseback term—the property is subject to a long lease which can be attractive to the ultimate purchaser of the property and its financier
financing—leasing may help a borrowing entity to obtain funding it may not otherwise be able to access, and
seller's perspective—when rents payable under a sale
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