For many owner-managed businesses, the largest asset on the balance sheet is the freehold of the premises they trade from. A sale and leaseback lets the business sell that property to an investor or specialist lender and immediately lease it back, converting locked-up bricks and mortar into working capital without having to move. It is not the right answer for every business, but in the right circumstances it can fund growth, an acquisition or a restructuring without adding conventional debt. This guide sets out how the structure works in the current market, what it costs and what to weigh up first.
How a commercial sale and leaseback works
The business (or its owners, if they hold the property personally) sells the freehold to a buyer at an agreed market value. On completion, the parties sign a lease under which the seller continues to occupy the premises as tenant, paying rent for a fixed term. The seller receives the sale proceeds in cash, less costs and any existing mortgage that must be repaid, and the buyer acquires an income-producing investment with a tenant already in place.
The terms that matter most are the lease length, the rent and rent review mechanism, repairing obligations, and any option for the business to buy the property back. A longer lease to a profitable, well-run business is generally more attractive to investors, which can support a higher sale price.
Why businesses use it
- Releasing capital without new borrowing. The proceeds can fund working capital, equipment, expansion or the repayment of more expensive debt, rather than adding another facility alongside existing lending.
- Funding an acquisition or management buyout. Capital released from property can be used as equity, which may help a company approach senior lenders from a stronger position.
- Retirement or succession planning. Owners wishing to realise value from the property while the business carries on trading can separate the two assets.
- Avoiding disruption. Unlike selling and relocating, the business stays where its customers, staff and licences are.
The trade-offs to weigh up
Selling the freehold means giving up ownership of an asset that may appreciate, and replacing a mortgage payment with rent that is typically reviewed upwards over time. The business also takes on lease covenants, and the landlord, not the business, controls the long-term future of the building. Compared with simply borrowing against the property, a sale and leaseback can therefore cost more over the long run even where it is cheaper at the outset. Often the more sensible comparison is between a sale and leaseback and a straightforward commercial mortgage: see our guide to commercial mortgage loan-to-value in 2026 for how much a lender may advance against trading premises.
Premises with a residential element, such as a shop with a flat above, raise additional valuation and structuring points; our article on semi-commercial mortgages and mixed-use property explains how lenders treat these buildings.
What buyers and lenders look for
Investors purchasing a sale-and-leaseback property are in effect lending against the tenant’s covenant strength. They typically examine trading history, recent accounts, rent cover (how comfortably profits cover the proposed rent), the condition of the property and the length of the lease being offered. Specialist or single-use buildings usually attract a lower valuation than flexible, easily re-lettable property, because the investor’s fallback position is weaker if the tenant fails.
Where the business is also looking at wider funding for growth, it can make sense to look at the whole picture together. Our guide to corporate banking and company loans in 2026 covers the other facilities that are commonly combined with property-based funding.
Tax and legal points to take advice on
A sale and leaseback can trigger Capital Gains Tax or corporation tax on any gain, Stamp Duty Land Tax on the lease and VAT considerations if the property is opted to tax. The correct treatment depends entirely on individual circumstances and the structure used, so you should take advice from a qualified tax adviser or accountant, and from a solicitor on the lease terms, before committing to a transaction.
Getting the structure right
Because the property is being sold rather than charged, the process involves valuation, legal due diligence and negotiating a lease, which usually takes longer than a standard loan. Planning from the outset, and comparing the net cost against a commercial mortgage or other options, tends to produce a better outcome than treating it as a last resort. For the full range of options, see our commercial mortgage service page and our Commercial and Corporate Banking Hub. Business owners with premises in East London and Essex can also find local context on our Dagenham mortgage broker page, or browse the areas we cover.
Talk to a commercial finance broker
If you are weighing whether to release capital from your business premises, contact Giles Finance to compare a sale and leaseback with the alternatives, based on your own figures.
Commercial lending and property transactions of this kind are generally unregulated by the FCA. Your property may be repossessed if you do not keep up repayments on any loan secured against it. Nothing in this article is tax or legal advice.
Giles Finance is a trading style of Giles Finance & Consultancy Services, authorised and regulated by the Financial Conduct Authority (FRN 726857).