A leaseback—sometimes called a sale and leaseback—can be used on many different types of property. They are quite often used for equipment, however.
Most of the time two companies are involved in one of these agreements, though the agreement could be made between any two parties, which might be businesses, individuals, or other organizations. Usually the two companies will settle on a leaseback agreement before any sales or purchases are made. Once this contract is created one company will purchase something and then sell it to another company. The second company will then lease it back to the seller. Effectively in this situation, the seller of the property becomes the lessee and the buyer becomes the lessor.
A leaseback is rather quirky agreement, but it is not without purpose. Very often the lessee will not have a great deal of liquid funds, and making a large purchase could severely inhibit this company in many ways. By selling it to the lessor, the lessee will get back most of the money it spent on the initial purchase so that it is able to have operating capital available for other purpose. Then, by leasing the equipment back, the lessee will have the use of the equipment as well, which it can use to produce enough funds to make the lease payments for.
Lessors can also be benefited by a leaseback: having a continuous source of income from lease payments can be useful in different situations. Some lessors will also negotiate the contract in such a way that there are benefits beyond this as well, such as interest payments, use of the equipment when needed, and other options dependent on the specific situation.
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