A business sells a piece of land and then leases it back. What is a potential disadvantage of this approach?
Understand the Problem
The question describes a sale-leaseback transaction where a business sells an asset (land) and then leases it back from the buyer. It asks us to determine a potential disadvantage of this arrangement. Sale-leasebacks are often done to free up capital, but they also have drawbacks.
Answer
Loss of operational flexibility and control over the asset is a potential disadvantage.
A potential disadvantage is the loss of operational flexibility. The seller/lessee has fewer options to relocate, renovate, or replace equipment, and may also face the risk of non-renewal of the lease, and potential negative impacts to productivity.
Answer for screen readers
A potential disadvantage is the loss of operational flexibility. The seller/lessee has fewer options to relocate, renovate, or replace equipment, and may also face the risk of non-renewal of the lease, and potential negative impacts to productivity.
More Information
A sale-leaseback transaction can free up capital for a business, but it also means the company no longer owns the asset and must lease it back, potentially limiting future options.
Tips
Consider all long-term implications before entering into a sale-leaseback agreement.
Sources
- Sale Leasebacks & Synthetic Leases - nar.realtor
- Sale-Leaseback Transactions: Pros and Cons - 2025 - MasterClass - masterclass.com
- Sale-Leaseback | Definition, Purpose & Examples - Lesson - study.com
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