Sale-and-leaseback

Leaseback, short for 'sale-and-leaseback,' is a financial transaction, where one sells an asset and leases it back for the long-term; therefore, one continues to be able to use the asset but no longer owns it. The transaction is generally done for fixed assets, notably real estate, as well as for durable and capital goods such as airplanes and trains. The concept can also be applied by national governments to territorial assets; prior to the Falklands War, the government of the United Kingdom proposed a leaseback arrangement whereby the Falklands Islands would be transferred to Argentina, with a 99-year leaseback period, and a similar arrangement - also for 99 years - had been in place prior to the handover of Hong Kong to mainland China. Leaseback arrangements are usually employed because they confer financing, accounting or taxation benefits.

After purchasing an asset, the owner enters a long-term agreement by which the property is leased back to the seller at an agreed rate. One reason for a leaseback is to transfer ownership to a holding company while keeping proper track of the ongoing worth and profitability of the asset. Another reason is for the seller to raise money by offloading a valuable asset to a buyer who is presumably interested in making a long-term secured investment. Leaseback arrangements are common in the REIT industry.

According to Robert Peston, one-time Business Editor for the BBC, one option being considered for dealing with the subprime mortgage crisis is a sale-and-leaseback of toxic assets. Peston says "a sale-and-leaseback between the banks and the state has two supreme advantages: there's no need to value the poisonous assets; and losses on those stinky assets would be absorbed by the banks in manageable chunks over about 10 years."

Leaseback arrangements are popular in France, the United States, United Kingdom, and throughout Australia & Asia, including, more recently, in India.

Leaseback of residential property has been popular in France for more than 30 years, and there are significant tax advantages. Under the scheme, the purchaser may use the property usually between 1 and 8 weeks per year (with a maximum of 6 months per year). The French government encourages the development of leaseback schemes in touristic areas to alleviate shortages in rental accommodation. The government rebates the local VAT (which is 19.6%), when the property is purchased off plan.

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Wikipedia