A sale and leaseback is a technique that can be performed between two separate companies for a number of different purposes, depending on what is being sold and leased back. A sale and leaseback is usually agreed to mutually before any transactions are made. There are several similarities in a sale and leaseback though.
One company is in need of both capital, whether for operations, hiring employees, buying equipment, pursuing a business opportunity, or other purposes. In addition, there is an asset it possesses, such as equipment or real estate, that is worth a fair amount of capital. This asset could be purchased upfront in preparation to make the sale and leaseback, or it may have been held by the company for sometime prior to any agreement was made. This asset is sold to a second company in exchange for a large amount of liquid capital. Then, the second company also leases back the property it has just bought from the seller, so that the buyer becomes the lessor, and the seller becomes the lessee. The lessee now has obtained liquid capital that can then be used immediately for its own purposes, while still retaining the property it got the capital in exchange for. The lessor has the benefit of being able to receive continuous lease payments on the property for the period of the lease, which can be useful under certain circumstances. The lessor may also have other benefits in the sale and leaseback, such as other payments or perhaps free products or services from the lessee.
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