If you’ve been following some of the post-COVID-19 property trends, you may have noticed some ideally located and equipped light industrial and commercial properties for sale. The current economy has placed many businesses under pressure – and selling assets to free up capital is a tried and true strategy that can ease the financial difficulties of the post-lockdown period.
Putting an office unit or warehouse on the market is a great way to realise a quick cash injection – but does it mean you’ll have to relocate to alternative premises? Not if you sell under a sale-leaseback agreement where essentially, the seller becomes the lessee and the buyer/investor becomes the lessor.
How leasebacks work
If you’re considering selling your property – following one of the more popular post-COVID property cashflow strategies – you can avoid having to move by agreeing to lease the premises from the new owner and unlock value from your property.
- A leaseback agreement is a legally binding arrangement that lets you sell your property and stay on as a tenant for the stipulated time period.
- You can agree on a long-term lease as a condition of sale to give yourself certainty and ensure a stable physical address that suits your commercial property budget.
The benefits of a leaseback sale
As a commercial property owner entering into an agreement of this type, you’ll enjoy the continuity of remaining at your current address (which will inspire confidence in your customers) without having to worry about financing the property.
- If there’s a significant amount of equity in your bond or you own the premises on a freehold basis, you’ll enjoy a substantial positive cash flow that you can use to cover overheads or diversify your business for the post-lockdown era.
- Your risk profile will be considerably lower as a tenant than as an owner-occupier as you eliminate the additional worry of once-off expenses related to building maintenance.
- By converting an asset (your premises) into a monthly expense (your lease payments) you may be putting your business at an advantage from a taxation point of view.
- This aspect is definitely something you’ll want to discuss with your accountant or financial consultant before considering a leaseback.
An ideal solution for uncertain times
One of the biggest benefits of a leaseback is that you can stipulate terms and conditions that simply wouldn’t be possible with a regular sale.
- If you require a lease that extends for years or even a decade, you can request this as part of the leaseback negotiations.
- You could also request that you have a “right of first refusal” clause to buy back the property should the buyer choose to sell at a later stage, as well as an option to renew the lease when it expires before the new owner can seek another tenant.
The combination of flexible, stable lease terms and a cash injection at a time when many businesses need it the most should stand you in good stead as you weather the COVID economy.
Not sure how to take the next step? Let us advise you
Knowing how to plan an effective leaseback agreement is essential – and that’s where the expertise of your agent comes into play.
The Commercial Space team has extensive experience negotiating sales and rentals and advising clients on how to budget for commercial property costs. Contact us today to schedule a consultation.