We are independent & ad-supported. We may earn a commission for purchases made through our links.
Advertiser Disclosure
Our website is an independent, advertising-supported platform. We provide our content free of charge to our readers, and to keep it that way, we rely on revenue generated through advertisements and affiliate partnerships. This means that when you click on certain links on our site and make a purchase, we may earn a commission. Learn more.
How We Make Money
We sustain our operations through affiliate commissions and advertising. If you click on an affiliate link and make a purchase, we may receive a commission from the merchant at no additional cost to you. We also display advertisements on our website, which help generate revenue to support our work and keep our content free for readers. Our editorial team operates independently of our advertising and affiliate partnerships to ensure that our content remains unbiased and focused on providing you with the best information and recommendations based on thorough research and honest evaluations. To remain transparent, we’ve provided a list of our current affiliate partners here.

What is a Leaseback?

By Sherry Holetzky
Updated May 16, 2024
Our promise to you
SmartCapitalMind is dedicated to creating trustworthy, high-quality content that always prioritizes transparency, integrity, and inclusivity above all else. Our ensure that our content creation and review process includes rigorous fact-checking, evidence-based, and continual updates to ensure accuracy and reliability.

Our Promise to you

Founded in 2002, our company has been a trusted resource for readers seeking informative and engaging content. Our dedication to quality remains unwavering—and will never change. We follow a strict editorial policy, ensuring that our content is authored by highly qualified professionals and edited by subject matter experts. This guarantees that everything we publish is objective, accurate, and trustworthy.

Over the years, we've refined our approach to cover a wide range of topics, providing readers with reliable and practical advice to enhance their knowledge and skills. That's why millions of readers turn to us each year. Join us in celebrating the joy of learning, guided by standards you can trust.

Editorial Standards

At SmartCapitalMind, we are committed to creating content that you can trust. Our editorial process is designed to ensure that every piece of content we publish is accurate, reliable, and informative.

Our team of experienced writers and editors follows a strict set of guidelines to ensure the highest quality content. We conduct thorough research, fact-check all information, and rely on credible sources to back up our claims. Our content is reviewed by subject-matter experts to ensure accuracy and clarity.

We believe in transparency and maintain editorial independence from our advertisers. Our team does not receive direct compensation from advertisers, allowing us to create unbiased content that prioritizes your interests.

A leaseback, sometimes known as a sale/leaseback or sale and leaseback, it is a transaction wherein the owner of a property sells that property and then leases it back from the buyer. The purpose is to free up the original owner's capital while allowing the owner to retain possession and use of the property. The type of property involved can be anything from residential or commercial real estate to equipment or vehicles.

Both the buyer and the seller can benefit from a leaseback. The seller gets a lump sum of cash quickly, and the buyer gets a lower than market value purchase price, along with a long-term lease at a premium rate. The lease amount provides periodic income and may even be enough to pay the buyer's mortgage, if he or she borrowed money to obtain the property. This type of transaction can be a great investment tool that yields a high return, although as with any investment, there are associated risks.

Some leaseback arrangements allow the seller, or current lessee, the option to buy back the property at a future date. During the life of the lease, however, the buyer derives tax benefits from the arrangement, such as being credited for depreciation of the property. If the seller exercises the option of buying the property back, all rights will revert to him or her upon closing the transaction, so setting the sale for the end of the tax year is a convenient way to keep things straight for tax purposes. This is important, because if either party is audited, both can experience problems that range from minor inconveniences to very costly dilemmas.

If the seller files bankruptcy or is audited, and tax officials or a bankruptcy court believes that the seller arranged the leaseback to hide assets, the transaction can be reclassified. Ownership of the property will be credited to the original owner, and the property may be confiscated in order to resolve tax liens or arrears to other creditors. In this case, the buyer could lose a great deal of money.

SmartCapitalMind is dedicated to providing accurate and trustworthy information. We carefully select reputable sources and employ a rigorous fact-checking process to maintain the highest standards. To learn more about our commitment to accuracy, read our editorial process.
Discussion Comments
By anon317400 — On Feb 02, 2013

I need a draft of sale and Lease Back Agreement for a motor vehicle used in financial institutions.

By Sethubi — On Jul 12, 2011

I want to know how can i convince customers to sell their equipment to me, then i leaseback to them.Their life is three years and i will be maintaining them. they will be just using them.

By anon184677 — On Jun 09, 2011

The transaction is generally done for fixed assets, notably real estate and planes, and the purposes are varied, including financing, accounting and taxing.

By Yilong — On Mar 20, 2011

What is the implication of a sale and leaseback transaction that results in a finance lease? can you provide examples and the journal entries?

By anon60890 — On Jan 16, 2010

How do I know the owner will file bankruptcy? I have a leaseback transaction now, and just opened the escrow three days ago, and now I am so scared.

I really like the property, but now I don't want to take a risk, and better cancel escrow.I am so lucky to see this Web page. Many, many thanks.

By anon57365 — On Dec 22, 2009

The benefit to the lessee is just as the article says--to free up capital, and take depreciation and capital costs off the balance sheet.

The benefit to the lessor is the return derived from owning the property and leasing to a guaranteed tenant who is already interested in the building, and may be willing to sign a long-term NNN lease.

A corporation will either own the building, and then sell to an investor or real estate developer, and then "lease it back" to receive balance sheet savings and reduce maintenance costs--or--a real estate developer will construct the building as a "build-to-suit", and then lease to a guaranteed tenant.

By anon54795 — On Dec 02, 2009

rick9 re: CPA 17: Take a look at the prospectus filed with the SEC (on EDGAR).

I believe it indicates that 13 percent of your purchase goes to fund expenses and fees (that means you pay a dollar to get 87 cents of value).

Why not just buy publicly traded commercial REIT's and get 100 cents of value for your purchase price (at least you're not starting in a hole, 13 percent down - by the way, that assumes they market the entire issue, any amount issued less than the maximum could drive the percentage even higher than 13 percent). This is my interpretation of the prospectus, read it yourself and draw your own conclusions.

By rick9 — On Dec 29, 2008


Can anyone help me with this commercial REIT? They are basically a sale-leaseback REIT that is being marketed to me. I know they are a private non-publicly traded REIT. I am concerned about the commercial real estate market.

By orleansag — On Oct 13, 2008

Why would a company do this instead of just leasing from the beginning? Why own first and sell?

By anon19218 — On Oct 08, 2008

How do you account for a sale and lease back? i mean what effect does it have on the pnl and where?

before operating profit or after?

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.

SmartCapitalMind, in your inbox

Our latest articles, guides, and more, delivered daily.