Buying
Buying a sale-leaseback
In a sale-leaseback, a business sells its building and signs a lease to stay. As the buyer, you get a tenant on day one. What you’re really buying is that tenant and that lease. Check the tenant’s finances, the rent against the market and the lease length.
Buyer representation
What buying a sale-leaseback is
A plain explainer if you’re new to this.
- What it is
Buy a building, the seller stays
In a sale-leaseback, a business owner sells its building and signs a lease to stay as the tenant. You’re the buyer, so you get the building and a tenant on day one.
- How the income works
Usually a long net lease
The lease is often long, five to twenty years, and net, so the tenant pays taxes, insurance and upkeep.
- The risk
It depends on one tenant
Your income depends on that one business. If it fails, you have an empty building built for its use.
- What I check
The tenant, the lease and the building
I look at the tenant’s financial strength, the lease length and terms, rent against market, and whether the building would suit another tenant.
General information, not tax or legal advice. Rules and rates change, and every situation is different. Talk to your lawyer and accountant before you act on anything here.
Value comes from the lease
The price depends mostly on the tenant’s strength, the length of the lease, the rent and who pays the costs. A long net lease to a strong business is worth more than a short one to a struggling one.
Watch the rent level
A seller can set the rent above market to push the price up. That looks good on paper but leaves you exposed if the tenant leaves and you have to re-lease at market. I compare the rent with similar spaces nearby.
What to check
- The business’s financial statements, and whether there’s a guarantor
- Lease term, renewal options, rent increases and who pays taxes, insurance and repairs
- Any rights the tenant keeps, like an option to buy back or a right of first refusal
- The building’s condition and how it would work for another tenant
How I help
I’ve spent most of my career on the tenant side, so I know how tenants read a lease and what they’ll push for. That helps on the buy side too.
Questions people ask
Why would an owner sell and lease back?
To free up cash for the business, retirement or another investment, while staying in the building.
Is a sale-leaseback a safe investment?
It can be steady, but it rests on one tenant. If the business fails, the building is empty. Check the tenant and the re-leasing risk carefully.
Who pays the costs after the sale?
Whatever the new lease says. Most sale-leasebacks are net leases where the tenant pays taxes, insurance and most upkeep, but read every clause.
What should I gather, ask and watch for?
Documents to gather
- Financing pre-approval
- Accountant’s advice on structure and tax
- Your criteria and limits
- Budget for reports and closing costs
Questions to ask
- What does the lease or the court order or the agreement actually say?
- What reports exist, and how current are they?
- What are the risks if the plan changes?
- How will I exit in a few years?
Common mistakes
- Skipping legal advice on structure
- Too short a condition period
- Assuming the seller’s numbers are right
- No written plan for disagreements or exits
Typical timeline
- Before offersFinancing and structure
- Condition periodTypically 30 to 60 days
- Completion30 to 90 days; court-ordered sales follow the court’s timeline
- AfterOwnership, insurance, management
Typical ranges. Your lease, lender and the City set the real dates.
Go deeper
If you’re looking for more details
Sale-leaseback questions
- How long has the business been there, and how is it doing?
- Is the rent at, above or below market?
- Is there a personal or parent-company guarantee?
- What happens at the end of the lease?
- Does the tenant have an option to buy the building back?
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Next step
Looking at a sale-leaseback?
Send me the lease and the tenant’s numbers. I can tell you how the rent compares and where the risks are.