Owning real estate is a significant financial commitment. Buying structures or land ties up capital but provides a convenient and customizable location for your business to operate or an income stream should you choose to lease the site to another. Depending on the needs and goals of your business, there are excellent reasons to purchase or sell real estate.
In some cases, these reasons may conflict. What if you need more liquid capital but want to maintain your current facilities? What if you wish to invest extra capital but have no use for additional real estate? This is where sale-leasebacks (SLBs) may become useful tools for your organization.
What Is a Sale-Leaseback?
A sale-leaseback agreement is a transaction in which the owner of a piece of real estate agrees to sell it to another party in exchange for the ability to lease it back from them. The seller continues to receive the right to use the property and its facilities in exchange for submitting lease payments and maintaining the location. Meanwhile, the buyer will own the property and receive lease payments without the responsibility of maintaining the site.
SLB sellers come from a wide variety of industries. They may include restaurants, manufacturers, retailers, and other companies that own real estate but would prefer more liquid capital.
The most frequent buyers in SLB transactions are banks and investment firms. These are the institutions that are most often interested in building portfolios of real estate without actively using the properties they purchase. However, other companies may also buy SLB properties to expand their holdings or achieve other investment goals.
The specific structure of a sale-leaseback in Florida can vary significantly. These transactions are typically subject to negotiation. The buyer and seller will work closely to develop sale and lease agreements that appeal to both parties, with the assistance of experienced business legal counsel.
Possible Benefits of Sale-Leasebacks
SLBs can be beneficial to both buyers and sellers, depending on the circumstances. Positive features of these agreements include:
- Freeing up capital: Sellers receive the purchase price of the property to cover liabilities or expand their businesses, while buyers will receive a consistent income stream from the lease on the property.
- Maintaining access to the facilities: The seller will not sacrifice the facilities they need to operate the business.
- Setting flexible terms: Both parties can negotiate the SLB agreement’s terms, so everyone should be satisfied when the contract is signed.
- Achieving tax benefits: Selling or buying a property can have tax benefits in many circumstances, allowing one or both parties to reduce their tax burden.
When written properly, an SLB leads to financial benefits for both parties.
Potential Risks of Sale-Leasebacks
However, despite the possible benefits of SLBs, they also can expose both parties to risks if the contract is not managed carefully. These include:
- Reduced flexibility: Once an SLB is signed, both parties are locked into the contract. The seller will no longer have the same freedom to alter the property as they did when they owned it, and the buyer will no longer have the liquid capital it spent on purchasing the property.
- Loss of the asset: Once the lease element of a sale-leaseback ends, the buyer may choose not to lease the property again, and the seller may lose access to the facilities.
- Loss of income: If the seller goes out of business or opts not to renew the lease after the initial agreement ends, the buyer will need to find a new lessee or lose the income it expects from the property.
These risks tie back to the relationship between the two parties. If the buyer and seller operate in good faith, the potential drawbacks of an SLB can be minimized. Many of these risks can also be reduced by careful management of the negotiation process to ensure the contract enforces fair terms regardless of either party’s intentions.
Managing an SLB Effectively
The benefits of SLBs outweigh the drawbacks for many organizations, but only if the agreement is managed appropriately. Drafting and implementing a sale-leaseback in Florida takes experience and attention to detail, or it may harm both parties.
The best way to ensure that Florida sale-leasebacks benefit you is to draft your agreement with a knowledgeable real estate and business attorney. Your legal counsel will help you answer critical questions such as:
- What rights to the property will both parties maintain, receive, or lose?
- How will the lease payments be structured?
- Who is responsible for paying taxes and utilities?
- How long will the lease last?
- Who will be responsible for maintaining the property?
- What are the penalties for breaking the lease early?
- Will the seller have the right of first refusal for subsequent lease terms, or if the buyer chooses to sell the property in the future?
There are no one-size-fits-all answers to these questions about Florida sale-leasebacks. Instead, they must be answered individually by the parties negotiating the contract. Your attorney will work with you to ensure the answers you achieve are fair, legally enforceable, and support your business’s best interests.
Consult With Skilled Real Estate Attorneys About Sale-Leasebacks for Businesses
A sale-leaseback can be an excellent way for your business to access additional capital, reduce liabilities, and even improve your tax bill. However, these transactions require careful consideration and expert legal counsel or may expose your company to unnecessary risk. At Isriel Ponzoli, our experienced real estate attorneys can assist you with the complexities of Florida sale leasebacks. Our Miami lawyers understand the details of these transactions, and we can help you negotiate a fair sale and lease that meets the needs of your business. Learn more about how we can assist you by scheduling your consultation with our Miami-Dade County real estate law firm today.