A sale and leaseback agreement is when an owner sells an asset and immediately leases it back from the buyer. This lets the seller free up cash but still use the asset.
It is common in real estate, but this method can apply to other business assets too. Both sellers and buyers can benefit from this arrangement.
Everything You Need To Know About Sale and Leaseback Agreement In Malaysia
How a Sale and Leaseback Agreement Works
In this agreement, the seller becomes the tenant after selling their asset. The buyer becomes the landlord and receives rent from the seller.
The lease terms, duration, and rental rate are agreed upon upfront. This ensures clarity for both parties.
When to Use Sale and Leaseback
A sale and leaseback is useful when a business needs cash for operations or expansion. It is also helpful when a company wants to improve its balance sheet.
Sometimes owners sell assets during periods of strong market prices. They can then continue using the asset while unlocking capital.
Benefits for Seller and Buyer
Here’s what each party gains from a sale and leaseback arrangement:
| Party | Potential Benefits |
|---|---|
| Seller / Lessee | Unlock capital: Receive immediate cash from the sale of the property to reinvest in core business or other purposes. |
| Continue occupancy: Retain uninterrupted use of the property without relocation costs. | |
| Remove ownership burdens: Free from property management, maintenance, and ownership risks (depending on lease terms). | |
| Improve financial ratios: Sale proceeds can improve balance sheet liquidity and reduce debt-to-equity ratio. | |
| Predictable occupancy costs: Lease terms provide clarity on rental obligations for budgeting and planning. | |
| Buyer / Lessor | Secure rental income: Immediate income stream from an established tenant (the seller). |
| Long-term investment: Opportunity to acquire a stable, income-generating asset. | |
| Lower tenant risk: Lessee is typically a business familiar with the property, reducing tenant turnover risk. | |
| Potential capital appreciation: Ownership of property may yield capital gains over time depending on market conditions. | |
| Flexible asset use after lease: At lease expiry, option to re-let, redevelop, or sell the property. |
This shows why sale and leaseback is attractive for both parties. The seller/lessee gains liquidity while the buyer/lessor secures rental income and a stable asset.
Sale and Leaseback in Malaysia
In Malaysia, sale and leaseback is common for serviced apartments and commercial property. Developers sometimes offer it as part of “Guaranteed Rental Return (GRR)” packages.
The agreement terms depend on market rent and lease periods. Legal documents must comply with the National Land Code 1965.
Example: A buyer purchases a hotel suite and the developer leases it back for 5 years at 6% yield. After the lease, the buyer can renew or take possession.
Other Assets You Can Use for Leaseback
Leaseback can apply to many other assets beyond property. Here are common examples:
- Vehicles and fleets, used by transport companies to raise capital.
- Aircraft, often leased back by airlines after sale.
- Machinery and factory equipment, used by manufacturers to fund operations.
- Ships and marine assets, common in shipping industry deals.
- IT infrastructure, like servers and data centers for tech-heavy businesses.
- Renewable energy assets, such as solar panels sold to investors.
These assets are essential for business operations. That makes them attractive for sale and leaseback deals.
How to Do a Sale and Leaseback
Follow these simple steps to execute a sale and leaseback deal:
- Get the property or asset valued professionally.
- Find an investor or buyer willing to lease it back.
- Negotiate sale price, lease term, and rent.
- Prepare legal documents: Sale and Purchase Agreement (SPA) and Tenancy Agreement.
- Register the sale with authorities and complete the transaction.
Careful planning helps avoid legal risks. The lease agreement must clearly define rent, responsibilities, and rights.
Legal and Tax Considerations
A sale may trigger Real Property Gains Tax (RPGT) in Malaysia. Rental income for buyers will also be subject to tax.
Check all laws before signing. This ensures your leaseback agreement follows Malaysian rules.
Key Risks to Consider
The seller no longer owns the property and faces future rental obligations. The buyer risks tenant default if the seller’s business weakens.
It is wise to review the market and financial strength of the other party. This reduces exposure to loss.
Free Printable Sale and Leaseback Agreement Checklist
To help you plan your transaction, download this free printable checklist:
This checklist will guide you through key due diligence points. Use it to avoid mistakes before signing any agreement.
Conclusion
A sale and leaseback agreement can be a smart tool to unlock capital and secure stable rental income. It gives both sellers and buyers flexibility while ensuring predictable occupancy and financial clarity.
However, it’s not without risks. Investors must carefully assess the lease terms, rental yields, and the financial strength of the tenant or operator.
Opinion: Should You Use a Leaseback for Short-Term Stay Property Investment?
If you’re investing in a short-term stay property (e.g., hotel suites, serviced apartments), a leaseback agreement can seem attractive because it often offers “guaranteed rental returns” and hassle-free management.
But you should proceed carefully. After the leaseback period ends, actual rental yields may depend on tourism demand, location, and market competition. The “guaranteed” return during leaseback may not reflect long-term rental potential.
So:
✅ If your priority is passive income with minimal management in the short term, leaseback can be a good option — provided the operator is reputable and terms are clear.
⚠️ If you seek flexibility and higher returns in the open market after a few years, you need to research carefully to ensure the property remains attractive for direct short-term rentals after the leaseback ends.
In short, a leaseback is best for investors seeking low-maintenance, predictable income in the short term but may not guarantee superior returns long-term.
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