In today’s dynamic business landscape, companies are constantly looking for smarter ways to manage their assets and improve cash flow. One option that has become increasingly popular, especially in the real estate market, is the corporate sale and leaseback transaction.
In essence, a sale and leaseback involves a company (known as the seller-lessee) selling a property it owns to another party (the buyer-lessor), and then immediately leasing that same property back. In other words, the company turns its real estate into cash but continues to occupy and use the premises for its business operations. In return, the company pays rent to the buyer-lessor, who now holds legal ownership of the property.1
It is a transaction that combines the best of both worlds the seller gains liquidity while maintaining control over its operational space, and the buyer secures a long-term investment with steady rental income.
Why Companies Are Turning to Sale and Leaseback Arrangements
There are several reasons why this structure attracts corporations, especially those looking to strengthen their balance sheets.
Firstly, it is an efficient way to raise capital. Instead of taking on new debt or issuing shares, companies can unlock the value tied up in their property assets. The funds received from the sale can then be channelled into core business activities such as expansion, research and development, or debt reduction. For businesses in capital-heavy industries, this can be a crucial source of funding.
Secondly, it helps companies reduce their exposure to certain ownership risks. Once the asset is sold, risks associated with property ownership like market depreciation, uninsured damage, or even structural defects in newly built properties may shift to the buyer-lessor, depending on how the deal is structured. Although most leases still require the seller-lessee to bear day-to-day operational responsibilities, the bigger and long-term risks are now shared or transferred to the investor.2
Legal Complexities Beneath the Surface
Despite the clear advantages, sale and leaseback transactions are rarely straightforward. They are, by nature, legally intricate because they combine two separate but interdependent agreements – the sale and the lease. If not carefully handled, even small inconsistencies between the two documents can lead to significant disputes later on.
Due diligence plays a vital role here. For the buyer-lessor, it means verifying the property’s title, ensuring there are no encumbrances or restrictions, and confirming the property’s value and physical condition. More importantly, the buyer must assess the tenant’s (or seller-lessee’s) financial strength and long-term stability. After all, the investment’s value largely depends on the tenant’s ability to pay rent consistently throughout the lease term.
This evaluation should include corporate searches, financial checks, and legal assessments to confirm that the seller-lessee is properly incorporated and in good standing. A company with weak financials or an uncertain future poses a significant risk to the investor, especially when the lease runs for 10, 20, or even 30 years.3 For the seller-lessee, understanding the lease terms is equally crucial. Key provisions such as termination rights, rent review clauses, renewal options, and maintenance obligations must be clearly defined. Ambiguity in these areas can lead to disagreements down the line.4 The parties should also plan for contingencies, for example, what happens if the property is damaged, compulsorily acquired, or becomes unfit for use.
Ultimately, both parties must have a clear picture of their legal responsibilities before proceeding. Engaging legal advisers early in the process helps ensure that the documentation reflects commercial reality and protects each side’s interests.
Practical Implications for the Seller-Lessee
Once a sale and leaseback deal is completed, the seller-lessee effectively becomes a tenant in what used to be its own property. This shift comes with practical consequences.
The most obvious one is that the seller no longer enjoys ownership rights. While they can continue operating the business as usual, they no longer benefit from any future appreciation in the property’s value. If the property increases significantly in worth over the years, that gain belongs entirely to the buyer-lessor. The seller-lessee can only reacquire the property if the lease includes a buy-back option, usually at the market rate at that time.5
The seller’s control over the property also becomes more limited. Any major alterations, renovations, or changes in use typically require the lessor’s consent. This can be frustrating for companies that rely on flexibility in their operations or anticipate frequent upgrades to their facilities. That said, these constraints can be mitigated through careful negotiation. For example, the seller-lessee can seek a longer lease term, built-in renewal rights, or specific clauses allowing certain modifications without further approval. Such foresight can make a big difference in maintaining operational independence after the transaction.
From the buyer-lessor’s viewpoint, a sale and leaseback provide an opportunity to acquire a high-quality, income-generating asset. It offers predictable returns through long-term rental payments, often backed by reputable corporate tenants.
However, this comes with its own set of challenges. The buyer assumes the risks of ownership, including property maintenance, market fluctuations, and tenant default. If the tenant experiences financial distress, the buyer could face delays in rental payments or even difficulties repossessing the property. Therefore, the success of the investment depends heavily on careful risk assessment and prudent legal documentation.
Conclusion
Corporate sale and leaseback transactions can be a win-win arrangement when structured thoughtfully. For companies, it is an effective way to free up capital without disrupting operations. For investors, it is a reliable avenue to secure steady, long-term returns.
However, the transaction is not without its challenges. The legal and financial intricacies involved require careful planning, clear documentation, and thorough due diligence. Every clause in the sale and lease agreements matters from who bears the maintenance costs to what happens when the lease ends.
Given these complexities, companies should not approach sale and leaseback transactions casually. Seeking expert legal and commercial advice at every stage can make a significant difference between a successful deal and a problematic one.
At Azmi & Associates, our team has the experience and expertise to guide clients through each phase of a sale and leaseback arrangement, from structuring and negotiation to documentation and completion. When handled properly, this strategy can help businesses unlock real value from their assets while positioning themselves for sustainable growth.
For further information, please contact:
Mohd Sallahudin Abdullah, Partner, Azmi & Associates
mohd.sallahudin@azmilaw.com
- PwC, ‘6.2 Sale and leaseback transactions: introduction’ (PwC Viewpoint) https://viewpoint.pwc.com/dt/us/en/pwc/accounting_guides/leases/leases__4_US/chapter_6_sale_and_l_US/62_sale_and_leasebac_US.html accessed 10 November 2025.
- ‘Easing Liquidity Concerns by Unlocking Capital from Real Estate: Sale & Leaseback Transactions’ (Clifford Chance, May 2020) https://www.cliffordchance.com/content/dam/cliffordchance/briefings/2020/05/EASING-LIQUIDITY-CONCERNS-BY-UNLOCKING-CAPITAL-FROM-REAL-ESTATE.pdf accessed 10 November 2025.
- Emma H Mulvaney and others, ‘Sale-Leaseback Due Diligence Considerations’ (Frost Brown Todd, 29 May 2025) https://frostbrowntodd.com/sale-leaseback-due-diligence-considerations/ accessed 10 November 2025.
- MTR Legal, ‘Sale & Lease Back offers advantages and disadvantages’ (MTR Legal, 12 August 2025) https://www.mtrlegal.com/en/sale-lease-back-offers-advantages-and-disadvantages/ accessed 10 November 2025.
Robert D Mitchell, ‘Sale-Leaseback of Commercial Real Estate: Pros and Cons’ (Robert D Mitchell) https://www.robertdmitchell.com/article/sale-leaseback-commercial-real-estate/ accessed 10 November 2025.
