A Sale-Leaseback transaction is an effective financial instrument that allows a property owner to sell their asset and immediately lease it back from the new owner. This method is widely used in business to release working capital (Liquid Capital) when a company needs cash for development but does not want to lose its office or factory. This model is also used by individuals facing financial difficulties. However, such a transaction carries serious risks: if the seller-lessee fails to pay rent, they may permanently lose rights to the property. Therefore, the involvement of a qualified lawyer is essential to ensure a balance between the parties' rights and prevent the deal from becoming a hidden form of usury.
What does this service cover?
Legal services for Sale-Leaseback cover the following aspects:
- Transaction Structuring: Simultaneous preparation of Sales and Lease agreements. It is crucial that these two documents are legally intertwined.
- Buyback Option: Including an option in the contract that gives the seller the right to repurchase the property at an agreed price after a specified period.
- Lease Term Protection: Drafting long-term lease conditions (e.g., 10-20 years) so the new owner cannot evict the lessee or unreasonably increase rent.
- Risk Analysis: Assessment of financial and legal risks — what happens in case of default (non-payment)? What are the penalties?
- Tax Optimization: For businesses, it is important to determine how this transaction affects VAT and profit tax.
Common Real-World Scenarios
Typical scenarios where this service is used:
- Business Expansion: A factory owns an expensive plant but lacks cash for raw materials. It sells the plant to an investor, gets cash for production, and continues operating in the same building under a lease.
- Debt Consolidation: An individual has bank debt. They sell their apartment to a private investor with a buyback option, pay off the debt, and live in the apartment as a tenant until financially recovered.
- Retail Chains: A supermarket chain sells its store locations and leases them back so that capital is not "frozen" in real estate and can be used to open new branches.
Georgian Legal Framework
Sale-Leaseback transactions are regulated by the Civil Code of Georgia (Sales and Rent/Lease). The Code provides for a right of redemption (buyback), which can be registered in the Public Registry to protect the seller. For individuals, Civil Code norms restricting usury and unfair contract terms are significant. If the transaction effectively masks a loan, the court may deem it a sham transaction, so correct formulation by a lawyer is critical.
Process: How does a specialist work?
The lawyer first assesses the client's goals. If it is a hidden loan, the lawyer warns the client about risks. Then, a package of agreements is prepared: Sales and Lease. Special attention is paid to grounds for lease termination. The transaction is registered in the Public Registry, where the lease right (if longer than 1 year) and the buyback option are also registered. This ensures the new owner cannot sell the property to a third party in violation of the lessee's rights.
Why Legal.ge?
Sale-Leaseback is a complex and risky transaction requiring deep financial and legal knowledge. Specialists on Legal.ge will help you safely use this instrument to raise capital. Our lawyers ensure that your right to continue using the property and potentially reclaim it in the future is firmly protected by contract. Find a trusted partner on Legal.ge.
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