Sale–Leaseback Transactions (Leaseback)
Leaseback (or Sale–Leaseback Transactions) can be a confusion factor for many people but this has turned out to be very common today. This is used by most of the people who have their own property. This is the most innovative method of financial transactions that has gained much popularity in the present scenario. It is a kind of contract that gives the opportunity to the owner to sell the property and then set it to lease for a pretty long time. Therefore it becomes beneficial for the owner to be able to use the property without being the owner of it.
The transactions of the Leaseback (or Sale–Leaseback Transactions) are made mainly on the basis of the fixed assets, automobiles, trains, planes, real estates and the purposes are varied which includes accounting, financing and taxing. After an asset is purchased, the owner enters a long term agreement with the help of which the property is being leased back to the seller. One of the reasons for a leaseback is to transfer the possession of a holding company, and at the same time keep a proper track of the ongoing profitability of the asset.
In a sale-leaseback arrangement, an owner sells his or her belongings or property and instantly leases it back to the buyer as part of the same transaction. In this way, the seller gets the required revenue from the sale while keeping the ownership and use of the possessions, and the buyer is also guaranteed of immediate lifelong returns on the property. Sale-leaseback transactions are used most frequently in commercial real estate, but are also applicable to commercial automobiles and other forms of property.
How it works
In a sale-leaseback transaction, the proprietor sells its building to an investor in exchange for a lease commitment which is usually long-term by the owner. The advantages to the owner include:
1. The non-liquid assets and belongings are converted into cash.
2. Receipt of full market price for the real estate assets.
3. Capital assets are replaced by cash and removed from the balance sheets.
4. Improvement of debt equity ratios.
5. Lease payments are tax deductible to the former owner.
- Debt ratios
- Liquidity ratios
- Profitability ratios
- Asset management ratios
- Cash Flow Indicator Ratios
- Market value ratios
- Financial analysis
- Business Terms
- Financial education
- International Financial Reporting Standards (EU)
- IFRS Interpretations (EU)
- Financial software