Over the past five years, sale-leaseback transactions have been on the rise, based on dollar value, deal volume and other metrics. Parties to these types of transactions have a number of considerations to be mindful of when negotiating the relevant documents that are unique to sale-leaseback deals.
Below we summarize five such considerations to help with preparing for transactions of this nature:
- Take a Holistic Approach. As an overarching point, consider the allocation of risks and liabilities among both the purchase and sale agreement and the lease agreement on a holistic basis. Avoid negotiating each document on its own and treating parties solely as a buyer/seller or a landlord/tenant.
- Focus on Stranded Risks. Under most typical triple-net-lease agreements, tenants will take on responsibility for a variety of risks associated with the property and its day-to-day operations. The purchase agreement in a sale-leaseback transaction should address those risks that the tenant is not taking responsibility for under the lease and vice versa.
- Address Repairs and Environmental Remediation. Deal negotiations are often expedited if the parties can reach an agreement at the outset as to how to address responsibility for major repairs and environmental remediation.
- Understand Buyer-Landlord Motivations. It is important to get a clear understanding of the buyer-landlord’s long-term intentions for the property following expiration of the lease. The negotiation of a variety of terms in both the purchase agreement and the lease will be dictated by the buyer-landlord’s plans for the property once the seller-tenant has vacated the premises.
- Do Your Diligence. Notwithstanding that the seller-tenant will remain in occupancy of the subject property during the term of the lease, it is still important for buyer-landlords to conduct comprehensive due diligence. In addition to providing more information, certain diligence can provide a baseline for the condition in which the property must be handed back to the buyer-landlord upon expiration of the lease.
Have more than five minutes? Contact Graham Fulton or any member of our Commercial Real Estate group to learn more.
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