Legal Definitions - leaseback

Leaseback

A leaseback, also known as a sale and leaseback, is a financial arrangement where an owner sells an asset, such as real estate or significant equipment, but immediately leases it back from the new buyer. This means the original owner, who is now the seller, continues to use the asset as a tenant, paying rent to the new owner.

This strategy allows the seller to free up capital that was tied up in the asset, while still maintaining operational control and use of the property or equipment without interruption.

• Example 1: Manufacturing Plant

  A large automotive parts manufacturer owns the sprawling factory where it produces components for various car brands. To raise significant capital for investment in new robotics and automation technology, the company decides to sell the factory building to a real estate investment trust (REIT). As part of the sale agreement, the manufacturer immediately signs a long-term lease to rent the factory back from the REIT. This allows the manufacturer to access a large sum of cash for its technology upgrades without having to relocate its entire production operation, and it continues to operate in the same facility as a tenant.

• Example 2: Corporate Headquarters

  A prominent tech company owns its impressive corporate headquarters building in a major city. To improve its financial liquidity and focus its resources entirely on its core software development business, the company sells the headquarters building to a large institutional investor. Simultaneously, the tech company enters into a 15-year lease agreement with the investor to continue occupying and using the building as its headquarters. This arrangement provides the tech company with a substantial cash infusion while ensuring its employees can continue working in their established offices without any disruption.

• Example 3: Commercial Fleet Vehicles

  A regional delivery service company owns a large fleet of specialized trucks used for transporting goods. To upgrade its fleet with newer, more fuel-efficient models without incurring a large upfront capital expenditure, the company sells its existing fleet of trucks to a financial leasing company. Immediately after the sale, the delivery service enters into a multi-year lease agreement with the leasing company to continue using those same trucks. This allows the delivery service to convert its vehicle assets into cash, which can then be used to finance the acquisition of new trucks, while still maintaining its operational capacity with the current fleet in the interim.