We’ve talked about how to sell your commercial property, but the real question is – should you?
There have been some interesting discussions over the last month or so with commercial property owners asking these big questions. Some are close to or at retirement age and whilst not needing the money for anything in particular whilst others are looking to reduce overheads and capitalise on the new remote options that are becoming commonplace, whilst most others are being forced into this decision by the coronavirus pandemic.
It may come as a surprise, but most entrepreneur business owners in the UK are just 40 years old, making the latter option above the most likely. If you fall into this category, it may be worth considering sale and leaseback.
A sale and leaseback can be beneficial for both the buyer and seller alike, as the seller is able to receive a lump sum of cash quickly, and the buyer acquires a lower-than-market value purchase price, along with a long-term lease at an attractive yield. But, like most things in life, there are several advantages and disadvantages of a sale and leaseback.
Some of the advantages of this scheme are;
- It converts property assets into capital without the need of the occupier to lose control of the building they occupy
- It avoids costs usually associated with conventional debt financing for real estate transactions such as valuation, brokerage and bank commitment fees
- Rental payments are tax-deductible
- If there is borrowing on the asset it will remove the associated debt from the balance sheet and improve the company’s debt to equity ratios
Some of the disadvantages of sale and leaseback include;
- Any future appreciation in the value of the property is no longer available to the seller
- The company can no longer enjoy the value of the property as part of any sale of the business
- There are instances where if the property has been owned for a long period, the tax implications may be detrimental and would need to be assessed before any deal is entered
If you are looking for an extra source of cash and are considering a sale and leaseback, it is crucial to take into account the advantages and disadvantages to determine if it will work for you and your commercial property. It is also important to examine the other options available, and avoid the common pitfalls – if you’d like to learn more about the sale and leaseback scheme, feel free to contact us here.