Corporate Finance: Sale and Lease-Back

Securing corporate financing, especially liquidity, is a top priority not only in an acute crisis. However, a glance behind this corporate truism – usually presented with a weighty expression – immediately reveals a seemingly insoluble dilemma: in particular the advanced stage of the corporate crisis is characterized by a permanent lack of liquidity. The only way to remedy this in the long term is to introduce (cost-intensive) restructuring measures, which will require liquidity that is currently unavailable due to the crisis. So how to cut this Gordian knot?

Legal structure

One way of generating liquidity can be to sell business assets and use the purchase price as a liquidity cushion. However, when selling assets necessary for business operations, there is obviously the problem of being able to maintain business operations nevertheless. Therefore, sale and lease-back financing has been established as a relevant component of restructuring and turnaround.

From a legal point of view, sale and lease-back financing consists of two separate contracts: the contract for the sale of the asset by which the seller sells the asset to the buyer (sale) and the leasing contract by which the buyer, as lessee, acquires the rights of use of the asset from the buyer, now acting as lessor, under a leasing contract (lease back). Such agreements are often combined with a right of repurchase, so that the lessee can reacquire ownership at a later date.

The subject of such a sale and lease-back agreement can in principle be all tangible and intangible rights held by the company. In practice, sale and lease-back agreements for a company’s machinery or vehicle fleet are frequently encountered, but real estate can also contribute to the generation of liquidity in this way. Due to the ongoing digitalization, sale and lease-back contracts for trademarks or other intangible rights of the company are no longer an exception.

Transactions costs

However, the liquidity gain from a sale and lease-back construction is usually to a certain extent offset by considerable transaction costs: The buyer/lessor will pass on the costs for valuation and contracts to the seller/lessee in addition to the actual leasing fees. And the actual leasing fees alone can be in the range of ten percent or more of the value of the asset sold. In the event of a corporate crisis, the corresponding risks of the buyer/lessor will naturally be included in the calculation of the leasing rates as an additional risk premium (see below). Accordingly, such constructions only make sense if the free assets are of a higher value. As a refinancing instrument for smaller companies or service providers, sale and lease-back is thus regularly ruled out. However, even in the case of larger companies, the overall financing effect after transaction costs must be examined closely


In addition to the analysis of the transaction costs, an assessment of the tax consequences of a sale and lease-back financing is also recommended: From a tax perspective, the sale of the asset is basically a transaction that affects income and is therefore taxable. If the sale takes place within the framework of the implementation of a restructuring concept, the resulting profit may, however, possibly be waived under § 3a EStG. On the other hand, due to the lack of a corresponding reorganization privilege, there is no possibility of avoiding real estate transfer tax in real estate transactions, so that in such cases, tax-reducing steps in the form of leaving certain ownership shares with the seller may be indicated. With regard to the assessment under VAT law, the Federal Court of Finance decided as early as 2016 that – depending on the specific contract structure – a VAT-exempt loan may be granted to the seller/lessee.

Sale-and-lease-back in the corporate crisis

From the perspective of the buyer/lessor, there are risks in the crisis of the company that go beyond the normal course of business: For example, in 2013 the Federal Court of Justice (“Bundesgerichtshof“, “BGH“) decided that in the case of real estate leasing, the special regulations of the InsO on the termination options of rental agreements in insolvency are to be applied, with the consequence that any insolvency administrator appointed at a later date for the assets of the seller/lessee can terminate the leasing agreement with a short notice period of three months. In the case of leasing agreements for movable assets, the insolvency administrator may resolve the contract even more quickly by declaring the non-fulfilment of the leasing agreement.

If the purchase price has already been paid, such a short-term termination, especially at the beginning of the lease term, naturally leads to massive financial losses for the lessor. He may well have become the owner of the asset. Even if the insolvency administrator cannot contest the purchase agreement, the buyer/lessor still bears the realization risk of the purchased object. The situation also becomes problematic for the buyer/lessor if the seller/lessee does not receive any purchase price at all, e.g. if a loan agreement is still concluded between the parties which enables the buyer/lessor to offset the purchase price against the leasing instalments which become due later. This situation was the basis for a decision of the Higher Regional Court of Frankfurt/Main in 2010 in the context of a sale and lease-back financing. In this case, a group company had sold its vehicle fleet to a company whose sole shareholder was the group parent. The Higher Regional Court of Frankfurt/Main considered this construction (which took place during the company’s crisis) to be an inadmissible outflow of the company’s share capital and declared the transfer of ownership of the vehicle fleet to be contestable due to intentional creditor disadvantage.


Sale and lease-back transactions are in principle an effective means of generating liquidity in the company. However, before concluding such a transaction, management should also examine the costs and risks of such a transaction with regard to tax consequences and risks in the event of insolvency. Also, sale and lease-back financing in isolation will not always lead to rescue, but can only be embedded in a comprehensive restructuring concept as a building block for a sustainable restructuring of the company.

BGH, Urt. v. 25. 4. 2013 – IX ZR 62/12
BFH, Urt. v. 06.04.2016 – V R 12/15
OLG Frankfurt/M., Urt. v. 14.7.2010 – 17 U 239/09

all in German

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