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What is a sale and leaseback agreement? In short: you sell a business asset to a financier and immediately rent or lease it back, so that the fixed value is released as liquidity while you continue to use the asset as usual. The company receives money in its account, the financier becomes the legal owner, and you pay a periodic lease installment. It is a form of financing, not a regular sale, and the tax and legal implications depend heavily on the type of lease you agree upon.
The short answer
- What: Sale of a business asset combined with direct leaseback or leaseback from the same counterparty.
- Objective: To convert committed capital into working capital without losing the use of the asset.
- Two forms: operational lease (rental-like) or financial lease (installment purchase with economic ownership held by you).
- Ownership: legal ownership goes to the buyer/lessor; economic ownership can remain with you.
- Suitable for: machinery, vehicle fleet, business premises, or other stable-value assets on the balance sheet.
What exactly is a sale and lease back agreement?
At its core, the structure consists of two interconnected agreements. First, a purchase agreement (Art. 7:1 BW): the company sells a business asset, such as a machine or building, to a leasing company or investor. Immediately thereafter, a lease agreement under which the seller regains the use of the asset against periodic payment. Both parties therefore sign simultaneously as buyer and lessor, and as seller and lessee, respectively.
The difference compared to a regular loan is that no security right, such as a pledge, is established, but that the financier actually becomes the owner. For the company, the use feels unchanged: the machine keeps running, and the premises remain in use. Only the ownership and the fixed costs change form.
Operational or financial lease
The distinction between operational and financial lease determines virtually all consequences.
- Operational lease: the lessor remains the legal and economic owner and bears the residual value risk. The structure resembles renting. You book the installments as expenses, and the asset is, in principle, not listed as an asset on your balance sheet. Often shorter term, with repayment at the end.
- Financial lease: economic ownership and the risks of value fluctuations lie with you as the lessee. You capitalize the asset on the balance sheet and depreciate it yourself. You split the installments into an interest component and a principal repayment component. At the end, there is usually a purchase option at the residual value, so that legal ownership returns.
In sale-and-lease-back for liquidity, financial leasing is the most common, because the company intends to repurchase the asset in the long term and retain the investment benefits.
Legal and fiscal ownership
The question of ownership is the heart of this structure. Legally, ownership passes to the buyer: delivery takes place according to the ordinary rules for the asset in question. Economically, with a financial lease, the asset can remain with you, which means that you depreciate it and bear the risk of value loss.
A well-known point of attention is the prohibition on fiduciary transfers under Article 3:84, paragraph 3 of the Dutch Civil Code: a transfer that serves solely as security is invalid. In the Sogelease judgment (1995), the Supreme Court ruled that a genuine sale-and-lease-back does not fall under this prohibition, because it constitutes a genuine transfer and not merely security for recovery. The condition, therefore, is that there is a genuine purchase and not a disguised loan with collateral. From a tax perspective, the treatment follows economic ownership: with a financial lease, you capitalize and depreciate the assets yourself, while with an operational lease, you deduct the installments as expenses. Moreover, in the case of commercial property, transfer tax (Article 2 of the Real Estate Transfer Tax Act) applies to the sale, which makes the structure more expensive.
When does it fit? An example
A manufacturing company has machinery with a book value of €400,000 but insufficient working capital to pre-finance a large order. Instead of a bank loan, the company sells two machines to a leasing company for €350,000 and leases them back over five years via a financial lease. The company keeps the machines in production, gains immediate liquidity, and pays monthly installments. At the end, it buys the machines back via the purchase option. In this way, production remains uninterrupted and the order is financed.
Risks and points of attention
- Total costs: interest plus surcharge are often higher than a regular loan; calculate the effective burden.
- Maintenance and insurance: specify who insures and maintains the asset as long as the lessor is the owner.
- Residual value and purchase option: a purchase option that is too low may be considered a disguised purchase for tax purposes; have this reviewed.
- Bankruptcy of lessor: because the financier is the owner, determine contractually what happens to your right of use in the event of problems on their part.
- Real estate transfer tax: for a property, the levy weighs heavily in the assessment.
Honest recommendation
You do not always need a lawyer. If you lease a standard object, such as a car or common machinery, through a leasing company with a fixed contract, the model is usually sound and a careful reading of the terms and conditions suffices. However, consulting a lawyer is advisable when dealing with commercial property, custom arrangements with an investor, or when the purchase option and residual value could lead to disputes. In such cases, you want to be certain that the structure constitutes a genuine purchase and does not fail to violate the fiduciary prohibition as disguised security, and that the tax implications have been calculated in advance. For larger amounts, also involve your accountant, as the balance sheet and depreciation consequences partly determine whether the structure works out favorably.
Want to know more or arrange it immediately? View the sale and leaseback agreement, read how to draw up a sale and leaseback agreement and what it costs to have one drawn up.
Frequently Asked Questions
A structure in which you sell a business asset to a financier and immediately rent or lease it back. You free up liquidity without losing the use of the asset. The financier becomes the legal owner, and you pay periodic lease installments.
With an operating lease, the lessor remains the economic owner and you remit the installments as an expense; the asset does not appear as an asset on your balance sheet. With a financial lease, you have the economic ownership, capitalize the asset, and depreciate it yourself, usually with a purchase option at the end.
Legally, you are the buyer or lessor, because the asset has actually been sold and delivered. Economically, with a financial lease, it can remain with you: in that case, you bear the risk of value and depreciate it. At the end, legal ownership often returns via a purchase option.
Yes, provided it is a genuine sale. The prohibition on fiduciary transfers under Article 3:84, paragraph 3 of the Dutch Civil Code prohibits transfers that serve solely as security. In the Sogelease judgment (1995), the Supreme Court ruled that a genuine sale-and-lease-back constitutes an actual transfer and is therefore valid.
Assets with a stable value and a current market value: machinery, a vehicle fleet, business inventory, or commercial premises. The easier it is to determine the residual value, the simpler a lender offers the structure and the more competitive the terms.
The treatment follows economic ownership. With a financial lease, you capitalize the asset and depreciate it, with interest as a deductible expense. With an operating lease, you deduct the installments as expenses. In the case of a property, transfer tax (Art. 2 WBR) applies to the sale.
Not automatically. The effective burden of interest plus margin is often higher than a regular loan, but the structure is more accessible if a bank is unwilling to grant credit. Calculate the total costs and include the tax and balance sheet implications in the assessment.
