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What do companies need to consider in a leaseback agreement?

On Behalf of | Jun 1, 2022 | Real Estate Law |

There are many reasons why companies in Los Angeles purchase the building where they have their office space. It can be a good investment and also allows them the flexibility to make the space their own. However, while it can be a good investment, the investment only becomes beneficial when the company sells the building. Usually, when a company sells its property it means the new owners will take over and the business will need a new office.

Moving to a new space can be complicated though and involve many changes beyond just moving office furniture and their employees. Companies may have a different option though. The company could use a leaseback agreement with the buyers of the building. At a very basic level, the company sells the building, but then enters into a lease with the new owners and remains in the building as tenants. This can be very valuable for companies in need of capital at the time.

Factors to consider when entering into a leaseback agreement

When entering into these agreements, there are certain elements that each side of the agreement should consider before agreeing.

  • The company selling should be in a good place financially. If the new tenant is strong financially it lessens the risk to the buyer and also allows the seller to ask for a higher sale price.
  • The lease should be a triple net lease which places all responsibility on the tenant to pay for the taxes, insurance and improvements. These leases also allow the tenant the greatest control over the space as well and typically do not change what they were already paying before the leaseback.
  • Both parties should consider long leases, which allow the tenant the security of knowing they will not need to move for a long period and allows the buyer the security of an income stream for a long period.

Sale leasebacks can be beneficial to both the buyer and the seller in Los Angeles, but they need to be drafted correctly to maximize the benefits for both parties. Experienced attorneys understand the important elements of sale leasebacks and may be able to guide one through the process.