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Sale and rent back: finance your business with your real estate
What exactly is Sale and Rent Back?
Sale and Rent Back is a form of financing where you as an owner sell your business premises to a third party, to then rent it from this new owner under pre-determined terms. The sale releases liquidity that can be used in other ways, and as a seller, you also retain control over the property. Additionally, a Sale & Rent can be interesting in the context of the future sale or transfer of activities where successors are often mainly interested in the business activities and not in the building.
Although this construction is not new, it has gained enormous popularity recently. This has a lot to do with a changing mentality among business leaders. Increasingly, the focus is on the core activities and organization of the company, rather than owning real estate.
What is the difference with Sale & Lease Back?
- Sale & Lease Back is more strictly regulated, where, among other things, a purchase option must always be granted to the seller. In the case of a Sale & Rent Back, a call option can be included in the separate rental agreement, but this is not mandatory.
- Unlike a Sale & Lease Back, the real estate completely disappears from the asset side of the seller's balance sheet. The rents paid are included in the income statement and are fully deductible.
Our approach to Sale and Rent back
Why can Sale and Rent Back be interesting?
1. Investing in growth and business activities
Many companies nowadays choose to invest their available resources in growth and strengthening their business activities. A Sale & Rent Back construction can make the released resources available for this purpose.
2. Focus on business activities
Instead of spending time and resources on investing in and managing a business premises, many companies want to focus their full attention on their core business. When you choose Sale & Rent Back, the building owner is expected to invest in a sustainable building that meets today's and tomorrow's stringent energy standards.
3. Wealth planning
It is important to pay attention to the current and future situation of your company. A Sale & Rent Back construction can be appropriate for wealth planning on various levels.
The sale of the business premises generates liquid assets that can be used, for example, to buy out one of the children or current shareholders who no longer want to be involved.
Also, when you are considering transferring your company to external parties, Sale & Rent Back can be an attractive option. Acquirers are often primarily interested in the company's activities and do not necessarily want to purchase the business premises. By arranging the sale of the property separately, you increase the chances of a successful transfer.
What are the benefits of Sale and Rent Back for the seller?
The sale of the real estate releases liquidity that can be invested in the growth and strengthening of the company. This improved financial position positively reflects on your relationships with customers, suppliers, and bankers.
Operationally, nothing needs to change: the business activities continue to take place at the same location ensuring continuity is maintained.
The terms of the lease, such as the term and the rental price, are determined in advance. This provides certainty and clarity.
The real estate disappears from the balance sheet of your company after the sale, creating a clear separation between the return on real estate and that of the business activities.
For the seller/future tenant, the rental costs are fully deductible. This is particularly advantageous for properties that have already been fully depreciated and for buildings with significant land value, as the land can never be depreciated.
The costs for structural works after the sale are borne by the buyer.
What are the benefits of Sale and Rent Back for the buyer?
The future tenant, who knows the building well, indicates a willingness to stay in the property. This confirms that the company is satisfied with the building, the location, and the general condition of the property.
Since the seller (and thus future tenant) knows the property well and plans to stay, there are often few to no surprises or unexpected issues that arise during the transaction.
The buyer of the business property has the certainty of a direct return on his investment from the moment of the deed.
The parties have the opportunity beforehand to get to know each other and the business activities.
Dewaele as an expert in Sale and Rent Back mediation
Points of attention and pitfalls
Although Sale & Rent Back is an attractive option that brings many benefits, there are some important considerations. For example, the sale may possibly result in a VAT revision, it is possible that capital gains taxes are due, or that a possible reinvestment compensation needs to be carefully considered.
Successful cases
A supermarket operator had owned the real estate for years but wanted to open a second location to gain additional market share. By selling his real estate to an investor, he was able to quickly obtain cash to open a second store and grow his business.
Another success story can be found with a clothing manufacturer who decided to sell his production facility to an investor, but who still rents the facility today. With the money from the sale, new employees were hired, new machines were invested in, and thus the production capacity was further expanded.
Everything starts with a good conversation
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