What is a sale-and-leaseback transaction?

A sale-and-leaseback transaction is characterized by an owner selling their property and then leasing it back from the new owner, allowing them to remain in occupation as a tenant. This arrangement is often utilized by business owners who want to free up capital tied up in real estate, enabling them to invest that capital in their operations or for other purposes. The seller benefits from cash liquidity while retaining the use of the space, creating a win-win situation for both parties: the seller gets the immediate financial benefit, and the buyer receives a steady stream of rental income from the lease.

In contrast, the other options reflect different arrangements that do not fit the definition of a sale-and-leaseback. Subleasing involves a tenant leasing property to another party, which does not involve selling the property. Renting with an option to buy outlines a different agreement where the tenant has the choice to purchase the property in the future but does not involve immediate sale and leaseback. Lastly, selling property at auction with immediate leasing also does not describe the transaction's core element of selling and immediately leasing from the new owner.