Many businesses choose to own their properties and rent to themselves but, in economically stressful times, there is “significant opportunity” to release this equity for use in their businesses.
A great mechanism for this is a sale and leaseback, which involves selling a property to an investor and agreeing to lease it back from them under predetermined conditions, says Andrew Jefferson, a director of Annenberg Property Group.
Explaining, he says a business would typically demand higher returns on capital than a property would. “Where you may sell your property at a 10% yield, you would expect to generate a higher yield from your business. It is also crucial in these times to be able to focus entirely on your business rather than worrying about maintenance and other property-related stresses.”
In addition, the financial risk profile as a tenant is lower than being an owner-occupier, as you can budget exactly on the costs associated with the lease, being rental and operational costs.
Jefferson adds many leaseback arrangements can contain a “right of first refusal” clause, where the tenant has a first right to buy back the property should the investor choose to sell it.
Another example is an option-to- purchase clause, where the tenant has a predetermined right to purchase the property back from the landlord at a set price and under set conditions either at the end of the lease agreement or at another agreed time.
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