Monday, 07 September 2021 15:22

Brodies - The Legal View - Needing to Raise Funds? Have you considered a sale and leaseback?

Colin MacLaren

With current market conditions putting a squeeze on cash and on investment it can be important to raise new money to help bolster the business. Raising that additional cash can sometimes be difficult. Here is a thought though.

Where a business owns its operating property, one option to raise additional working capital could be do a ‘sale and lease back’ of that property. In such an arrangement the business sells the property on the basis of immediately entering a new lease, and thereby delivering to the purchasers a ready-made investment producing rental income from the date of sale.

Assuming that there are spare funds available on such a sale (any existing loans on the property would be repaid as a part of the process), these can then be used by the business to invest further or to perhaps reduce bank or other debt.

Inevitably things will never be that simple, and there are a few issues that you will need to consider, such as:

What are the tax implications?
What sort of returns would an investor demand from you as a tenant?
Will the rental obligations be more demanding on the cash flow?
What about the loss of control over repairs and renewals, can the business extend the premises at a later date, and if it’s sold can the business have an option to buy back later?
Can the property be acquired by the shareholders/directors pension structure? That at least might keep the asset in the “family”.

These are questions that must be considered and worked through but no one of which should necessarily prevent a sale and lease back transaction proceeding.

If additional cash is needed and the circumstances are right, a sale and leaseback should be considered and you should seek legal advice to assist in evaluating the options and the issues to help achieve the desired outcome.


Colin MacLaren is a Partner in the real estate team at Brodies LLP. You can contact Colin on 01224 392 251 or at Colin.MacLaren @ brodies.com.

If there are any topics you would like us to cover in future columns, please email us at legalview @ brodies.com.

The information in this article does not constitute any form of advice or recommendation by Brodies LLP and is not intended to be relied upon by you in making any specific decisions or taking (or refraining from taking) any action. If you wish us to give such advice, please contact the author.

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