§ 20A.01 What Is a Net Lease Sale-Leaseback?

• Jurisdiction: United States
• Publication year: 2022

§ 20A.01 What Is a Net Lease Sale-Leaseback?¹

[1]—Basic Structure

In its most basic form, a real estate sale-leaseback is a transaction in which an owner of a fee interest in real property (land and any improvements) sells that interest to a buyer and the buyer immediately leases the real property back to the seller under some form of net lease agreement.² Most of the discussion in this chapter relates and refers to this basic structure. However, there are a number of alternative structures used based on the needs of the parties and the circumstances of the specific transaction. The following are some examples of these alterative structures:³

• The buyer of the real estate is an affiliate of the landlord under the lease (which requires one additional conveyance—from the buyer to the landlord) and/or the tenant under the lease is an affiliate of the seller of the real estate.

• The real estate interest subject to the sale-leaseback is a long-term ground lease interest rather than a fee interest. This creates complications both with respect to the conveyance itself (as a separate agreement with the ground lessor is generally required) and the lease provisions (where the rights and obligations of the buyer-landlord as "tenant" under the ground lease must be considered).

• The seller conveys its interest in the land and leases it back from the buyer-landlord while retaining fee ownership of the improvements. This structure enables the seller-tenant to retain certain tax advantages.⁴

A wide variety of commercial real estate types can be and often are the subject of net lease sale-leaseback transactions, including gas stations, convenience stores, restaurants, retail stores, and office buildings.⁵

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Notes:

^[1] The discussion here is limited to sale-leasebacks relating to commercial real property, although other types of property (such as, for example, aircraft) are often the subject of sale-leaseback transactions. For a brief history of real estate sale-leaseback transactions in the United States, see Remensperger, "Sale-Leaseback Transactions," Westlaw Practical...