A sale-and-leaseback releases capital once and repurchases occupancy over time. The transaction works only when the use of proceeds is stronger than the burden, constraints and risks retained in the lease.

A company sells a property it occupies, receives cash and leases the same asset back from the buyer. The headline is immediate liquidity without an operational move. The economic reality is more demanding: ownership is exchanged for a contractual right to remain, together with a schedule of payments and conditions that may last well beyond the current business plan.

That does not make sale-and-leaseback unattractive. For the right company, asset and use of funds, it can separate operating capital from property ownership and create strategic capacity. But the proceeds are visible on day one, while the cost of reduced flexibility emerges over years. A board that looks only at the cheque can mistake monetisation for value creation.

The correct analysis treats the sale and the lease as one decision.

Liquidity arrives once. Occupancy is repurchased over time.

The simplest description of a sale-and-leaseback is also the most revealing. The company converts an owned asset into cash, then commits to pay for the continued use of that asset.

The cash receipt is certain at completion, subject to the transaction terms. The value of that liquidity depends on what happens next. If the proceeds reduce a genuine balance-sheet constraint, fund a credible investment or replace capital that is less suitable for the company’s objectives, the transaction may improve strategic flexibility. If the proceeds merely cover recurring operating shortfalls or are distributed without regard to the new lease burden, the company can emerge with fewer assets and a more rigid cost base.

This is why sale proceeds should not be assessed in isolation or celebrated as a multiple of book value. Book value is an accounting reference. It does not answer whether the company is exchanging a resilient asset for an obligation it can support through a full operating cycle.

The relevant comparison is the return and resilience expected from the use of funds against the full economic cost and constraints of the leaseback.

The buyer is acquiring more than real estate

From the buyer’s perspective, the property and the lease are inseparable. The value of the asset depends partly on the duration, quality and enforceability of the tenant’s commitment, the rent profile, allocation of costs and future uses of the site.

For the seller-tenant, the same terms determine how much operational freedom has been exchanged. A longer lease may support the buyer’s pricing while increasing the company’s fixed commitment. Strong indexation may protect the buyer’s income while making the tenant’s occupancy cost less predictable. Restrictions on assignment, alterations or subletting may preserve the asset but reduce the operator’s room to adapt.

The parties are not negotiating separate documents with separate economics. Rent, sale price, term, break rights, maintenance, capital expenditure, insurance, security, change of control and end-of-lease provisions are connected. A favourable term in one document may be paid for through a tighter obligation in the other.

Boards should therefore resist a sequence in which the price is agreed first and the lease is treated as implementation. The lease is part of the price.

Test the proceeds against their use

“Unlocking capital” is not an investment case. It describes a change in form.

The board needs a named use of proceeds and a counterfactual. What is the capital intended to achieve? Which financing or strategic constraint does it remove? What would the company do if it retained the property? What other sources of capital are available, and how do their obligations differ?

The comparison should be made under the same assumptions. If sale-and-leaseback proceeds are credited with funding growth, the analysis must also include the execution risk of that growth and the lease payments that continue if the growth is delayed. If the alternative is debt, it should not be reduced to an interest-rate comparison: amortisation, covenants, security, refinancing risk and maturity profile differ from rent, indexation, term and occupancy obligations.

Nor should the transaction be labelled cheaper than debt without a complete, case-specific analysis. A lease may have no contractual principal repayment, yet it creates cash commitments and may reduce flexibility in ways that a headline rate does not capture.

A useful board paper shows where the proceeds go, what they are expected to earn or protect, how quickly they can be redeployed and what happens if the expected benefit arrives late.

Put the lease into the same downside case as the business

The leaseback must be modelled under the operating scenarios that matter to the company, not just the buyer’s base case.

Start with rent coverage, but do not stop there. Test inflation-linked indexation, contractual fixed uplifts—including their interaction—service charges, insurance, taxes where applicable, and the allocation of maintenance and capital-expenditure responsibilities. Model renewal, break and extension rights as contractual choices with conditions, not as automatic flexibility.

Then move beyond the income statement. If volumes fall, can the site be partially vacated or sublet? If the operating footprint changes, can the property be altered? If a division is sold, can the lease be assigned? If the company is acquired, does change of control require consent or trigger new terms? If the facility becomes obsolete, who bears remediation or reinstatement costs? If the business outgrows the site, is adjacent capacity available and on what basis?

The most important scenario may not be insolvency. It may be strategic success that requires expansion, a business-model change that makes the location less useful or a transaction that cannot proceed cleanly because the property commitment was designed for the company that existed at signing.

The downside case must also extend to the end of the lease. A company that assumes renewal is certain may underprice its dependence on a critical site. A company that assumes relocation is easy may underprice operational interruption, permitting, labour availability and replacement capital expenditure.

Strategic control has a price

Owning an operational property can provide options that do not appear in a conventional property valuation. The company can alter, expand, finance, hold, sell or redevelop the asset, subject to law, financing and technical constraints. After a sale-and-leaseback, some of those decisions require another party’s consent or become unavailable.

That loss of control is not necessarily a reason to retain the property. It is a term to price and negotiate.

Site criticality is the starting point. A standard warehouse in a deep market is not equivalent to a highly customised production facility, regulated site, headquarters or property embedded in a local supply chain. The harder an asset is to replace, the more carefully the tenant should examine duration, renewal mechanics, alterations, access, casualty, environmental obligations and the end-state.

Control also matters at corporate level. A lease may affect future financing, a sale of the operating company, a carve-out or a restructuring. The transaction should be tested not only against today’s plan but against plausible ownership and capital-structure changes.

Flexibility is often cheapest before signing and most expensive when it is needed.

Accounting is a lens, not an investment thesis

Sale-and-leaseback discussions are still sometimes framed as a route to move an obligation “off balance sheet”. That shorthand is unreliable and can obscure the decision.

Under IFRS 16, a lessee generally recognises a right-of-use asset and a lease liability for leases within scope. The accounting treatment of a particular sale-and-leaseback transaction depends on its specific terms and facts and must be determined by the company’s qualified accounting advisers and auditors. In September 2022, the IASB issued narrow-scope amendments adding requirements that explain how a seller-lessee accounts for a sale-and-leaseback after the transaction date. In July 2026, at the conclusion of its post-implementation review, the IASB concluded that IFRS 16 is overall working as intended. Separately, it decided to consider in its next agenda consultation the priority of future work on applying IFRS 16 and IFRS 10 to the sale and leaseback of an asset in a single-asset entity.

Those standards determine accounting where applicable; they do not decide whether a transaction creates value for a particular company. The precise treatment depends on the facts and belongs with the company’s qualified accounting advisers and auditors. Tax, legal, valuation and financing conclusions likewise require their respective specialists.

For the board, the discipline is to keep three views visible at once: accounting presentation, contractual cash flows and operating resilience. A transaction can improve one metric while weakening another. No single accounting outcome substitutes for the full economic analysis.

A six-part board test

Before approving a sale-and-leaseback, a board should be able to answer six connected questions.

Liquidity. How much usable capital is created after transaction costs, taxes where relevant and any debt release or security consequences? When is it available?

Use of funds. What specific constraint or opportunity does the capital address, and what is the evidence that this use is stronger than retaining the property or using an alternative source of capital?

Burden. What are the total contractual cash requirements under base, downside and delayed-benefit scenarios, including indexation and non-rent obligations?

Control. Which decisions will require landlord consent, and how could the lease affect a future sale, financing, restructuring, expansion or contraction?

Flexibility. Which break, renewal, assignment, subletting and alteration rights are genuinely exercisable, under what conditions and at what cost?

End-state. What happens when the lease expires, the site becomes unsuitable or the business changes ownership? Which party controls the renewal or exit decision, on what terms, and what is the company’s downside exposure if continuation or relocation proves more costly or disruptive than assumed?

These questions should be answered under one set of scenarios. Separating them across the property sale, lease negotiation, financing model and operating plan creates the risk that each workstream looks acceptable while the combined commitment does not.

Monetisation is a transaction. Value creation is an outcome.

A sale-and-leaseback can create useful liquidity while allowing a company to remain in a strategically important property. It can also exchange an owned asset for a long-duration obligation that narrows future choices.

The difference does not lie in the label. It lies in the proceeds, their use, the durability of rent coverage, the contractual allocation of control and cost, and the company’s ability to adapt across the lease term.

CGPH Banque’s Real Estate Advisory & Transactions work may include advice and coordination on sale-and-leaseback and corporate real-estate monetisation. Certified valuation, brokerage, legal, tax, accounting, financing and technical work remain with the appropriately qualified or authorised specialists. No transaction structure is automatically suitable or value-accretive.

The sale releases the capital. The lease determines how much strategic freedom remains.

References and further reading

This article is provided for general information only. It does not constitute investment, transaction, financing, accounting, legal, tax, valuation, real-estate brokerage or technical advice, a recommendation or an offer. The accounting and economic effects of a sale-and-leaseback depend on the transaction terms, the company’s circumstances and the applicable standards and law. Decisions should be taken with the relevant qualified or authorised advisers.