What is a sale-and-leaseback transaction?

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What is a sale-and-leaseback transaction?

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What is a sale-and-leaseback transaction?

Explanation & AnswerSolution by a verified expert

Explanation

A sale-and-leaseback transaction includes selling of the asset by its owner to another party and then leasing it  back from its purchaser. The original owner ceases to own the asset but utilizes it under the lease agreement. The asset provided on lease is used and known to the lessee.
The agreement is generally made for fixed assets, preferably real estates, as well as durable goods such as airplanes and trains.
The selling of equipment under sale-and-leaseback transaction enhances the liquidity of the firm and fulfils its capital requirements without disturbing the profits earned from the concerned equipment.

Verified Answer

A sale-and-leaseback is a financial transaction in which the owner of the asset sells it to another party and then takes the asset back on lease in order to use it without having the ownership rights.

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