What a sale-leaseback is, how it works, why business owners use one to raise cash from their building and what the buyer gets.
A sale-leaseback is a deal in which an owner sells a property and leases it back for the long term, so it keeps using the property but no longer owns it.
Owners use it to raise cash from a valuable asset. It is one way of selling commercial property in Colorado without moving out.
This guide explains the steps, how the price and rent are set, why owners and investors do these deals, the risks on each side, the tax and accounting points to raise with advisers and how sale-leasebacks show up in Colorado mountain markets.
How a Sale-Leaseback Works
In a sale-leaseback, the buyer purchases the property and leases it back to the seller at an agreed rate under a long-term lease.
- Agree the price.
- Sign the long-term lease.
- Close the sale, with the seller becoming the tenant.
In practice, the steps run in more detail:
- Decide the goal. Know how much cash you need and how long you want to stay.
- Set the rent and term first. The rent you agree to pay drives the price a buyer will pay.
- Market the deal to investors. A broker presents the building and the lease as one package.
- Sign a purchase contract and a lease together. The lease is usually attached to the contract.
- Let the buyer complete due diligence. Expect an appraisal, an environmental report, a title review and a look at your business financials.
- Close. The deed transfers, the seller receives the proceeds and the lease starts the same day.
How the Price and Rent Are Linked
Investors price a sale-leaseback like any leased building, by dividing the rent by a capitalization rate.
Price = Annual net rent / Cap rate
A higher rent supports a higher price, and a lower rent supports a lower one. That gives the seller a choice. Agreeing to more rent raises more cash today, but the business pays that rent for the whole term.
Here is a worked example using the same rent at three cap rates:
| Annual net rent | Cap rate | Implied price |
|---|---|---|
| $150,000 | 6% | $2,500,000 |
| $150,000 | 7% | About $2,142,900 |
| $150,000 | 8% | $1,875,000 |
The cap rate reflects the tenant’s credit, the lease length and the location. A strong, long-established business on a long lease earns a lower cap rate and a higher price. For local ranges, see cap rates across Colorado property types.
Typical Lease Terms
The lease is the heart of the deal. Points to negotiate include:
- Term: Long, often 10 years or more, so the buyer has steady income.
- Lease type: Usually a net lease, where the tenant pays taxes, insurance and upkeep.
- Rent increases: Fixed steps or increases tied to inflation.
- Renewal options: The tenant’s right to extend at the end of the term.
- Repurchase option: A right to buy the building back later. This can change the tax and accounting treatment.
- Assignment and subletting: Whether you can transfer the lease if you sell the business.
The legal clauses themselves are covered in how a commercial lease agreement is built.
Why Owners Do Sale-Leasebacks
Owners do sale-leasebacks to free up cash while staying in the building. The seller raises money by selling a valuable asset. The deal can also move ownership into a holding company.
The main reasons are:
- Access to the full value. A sale can unlock up to 100% of the property’s value. A loan is limited by loan-to-value and debt coverage ratios.
- Paying down debt. Proceeds can retire loans and strengthen the balance sheet.
- Funding growth. Cash goes into equipment, staff, a new location or an acquisition.
- Deducting rent. Rent is generally a deductible business expense for the tenant.
- Shedding real estate risk. The owner no longer carries swings in property value.
- Planning an exit. An owner nearing retirement can sell the building now and the business later.
Sale-Leaseback vs Cash-Out Refinance
A cash-out refinance is the main alternative. It raises cash but keeps ownership.
| Feature | Sale-leaseback | Cash-out refinance |
|---|---|---|
| Cash raised | Up to the full sale price, less costs | Limited by the lender’s LTV and DSCR tests |
| Ownership | Passes to the buyer | Stays with you |
| Future appreciation | Goes to the buyer | Stays with you |
| Ongoing cost | Rent for the lease term | Loan payments until payoff |
| Tax on the transaction | A sale can trigger tax on the gain | A loan is generally not a taxable event |
| Control of the building | Limited by the lease | Full |
If you want to keep the upside, compare the numbers with a cash-out refinance of your building first.
Risks for the Seller
The seller gives up more than the deed.
- Lost appreciation. Any future rise in value goes to the buyer.
- A long rent obligation. The business owes rent for the full term, even if it shrinks.
- Tax on the sale. A gain, including past depreciation, can be taxed in the year of sale.
- Less control. Changes to the building may need the landlord’s consent.
- Moving at lease end. If renewal terms are poor, the business may have to relocate.
What Buyers Get
The buyer gets a property with a committed tenant from day one. Properties leased to long-term, established tenants support value. Many of these deals use net leases; see triple net leases in Colorado.
For an investor, a sale-leaseback offers:
- Steady rent over the lease term
- A depreciable building already occupied by a tenant
- A tenant who knows the building and chose to stay
- A long lease with known increases
Investors completing a 1031 exchange often look for this kind of single-tenant, net-leased property. The rules are in replacement property for a 1031 exchange.
Risks for the Buyer
The buyer is betting on one tenant.
- Tenant credit. If the business fails, all the income stops.
- Special-purpose buildings. A building built for one use may be hard to re-lease.
- Rent above market. A seller can push rent up to raise the price. If the tenant leaves, the next tenant may pay less.
- No personal guarantee. Some sellers offer the lease without one, which shifts risk to the buyer.
Buyers study the tenant’s financial statements as closely as the building.
Tax and Accounting Points to Raise With Advisers
Sale-leasebacks raise tax and accounting questions that need a CPA and an attorney. This section explains how they work, not what to do.
Is It a Sale or a Loan?
For taxes, the form of the deal is not always the end of the story. In Frank Lyon Co. v. United States (1978), the U.S. Supreme Court respected a sale-leaseback as a sale. The Court looked for real economic substance, business reasons beyond taxes and a buyer with genuine ownership traits.
A deal that works like a loan in disguise can be treated as financing instead. Fixed buyback prices and rent that simply mirrors a loan payment draw scrutiny.
Very Long Leasebacks
Treasury regulations treat a leasehold with 30 years or more to run as like-kind to real estate. A leaseback of that length can raise exchange questions for the seller. Ask a tax adviser before agreeing to a very long term.
Financial Statements
Under U.S. accounting rules (ASC 842), the seller first checks whether the transfer counts as a sale. KPMG explains that a repurchase option on real estate generally blocks sale accounting. If the leaseback is a finance lease, sale accounting is also ruled out.
When a sale fails these tests, the seller keeps the building on its books and records the cash as a liability. When the sale succeeds, the seller records the full gain or loss. This matters to businesses with lenders or investors who read their financial statements.
Sale-Leasebacks in Colorado Mountain Markets
Sale-leasebacks show up in Colorado’s mountain and Western Slope towns, often from established local operators. RMCRE’s Montrose Q4 2025 market update listed a sale-leaseback offering from Telluride Express. The owner-user offered a 10-year leaseback at a 7% cap rate, with a target price of $2.8 million.
At that cap rate, the price implies first-year rent of about $196,000. That is the formula from earlier in reverse: $2,800,000 times 7%.
The same report noted that the offer came without a personal guarantee. It pointed instead to the company’s long operating history and regional brand on the Aspen to Telluride corridor. That is the trade-off investors weigh: no guarantee, but a tenant with a long track record.
Local cap rates set the price an owner can expect. RMCRE’s Montrose Q2 2026 report showed cap rates of 8%, against 7% a year earlier. In Aspen, the 2026 year-to-date report showed 4.5% to 6.0%. The same rent is worth far more in a low cap rate resort market than in a higher cap rate Western Slope town.
Colorado details also shape the numbers:
- Property tax: Under a net lease, the tenant usually pays it. Most Colorado commercial buildings are assessed at 25% of actual value in 2026, down from 27% in 2025.
- Nonresident sellers: When a nonresident sells Colorado property, Colorado withholds the lesser of 2% of the price or the net proceeds.
- Seasonal businesses: In resort towns, investors look closely at how the tenant’s sales hold up between ski and summer seasons.
Mistakes to Avoid
- Setting rent too high to inflate the price. The business must pay that rent for years.
- Signing a short term to keep options open. A short lease lowers the price and the buyer pool.
- Forgetting renewal options. Without them, the business could lose its location at lease end.
- Skipping tax advice. The gain, depreciation recapture and lease terms all affect the result.
- Agreeing to a buyback option without checking the accounting. It can turn the sale into a financing on your books.
Frequently Asked Questions
Is a sale-leaseback a good idea?
It suits an owner who needs cash, plans to stay and does not need the building’s future appreciation. It suits less well an owner who expects values to rise sharply or may move soon.
How is the price set in a sale-leaseback?
The price is the annual net rent divided by a cap rate. Higher rent or a stronger tenant supports a higher price.
How long is a sale-leaseback lease?
Usually long, often 10 years or more, so the buyer has steady income. The Montrose offering described in this guide used a 10-year term.
Who pays property taxes after a sale-leaseback?
Under a net lease, the tenant usually pays property taxes, insurance and maintenance. The lease sets the exact split.
Can I buy my building back later?
A repurchase option can be written into the deal. It can change the tax treatment and usually blocks sale accounting for real estate, so review it with a CPA first.
Structuring a Sale-Leaseback in Colorado
RMCRE’s consulting work covers finance strategy, lease analysis and occupancy decisions. See RMCRE finance and lease consulting.
Rocky Mountain Commercial Real Estate has connected partner brokers across Colorado mountain towns since 2010. We help owners price the lease and the building together and find investors who want a long-term tenant.
