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B U S I N E S S

FINANCE aestheticmed.co.uk

• Release of cash and existing debt Accordingly, any decision to enter into a sale and
For many businesses a sale and leaseback allows them to leaseback arrangement where the company is perceived
convert an asset into cash without losing control of the to be struggling should always involve professional advice
business. In the same way, where bank debt is secured and a clearly documented decision-making process as to
against the asset, the sale of that asset should enable a why the company took this approach.
company to repay that debt and remove the ongoing need
for interest repayments. • Financial covenant and security
This is key for any investor. An investor buying any asset
• Lower costs compared to traditional refinancing wants to try to build in a level of certainty that the rent
While engaging with a bank to secure debt against an due under the lease they grant will be paid. In uncertain
existing asset may be an option, there are usually higher times there may be a feeling among investors that some
transactional costs associated with such deals, including companies looking at sale and leasebacks are struggling
being responsible for valuation, arrangement, legal and financially, and that a commitment to pay rent over a long
bank commitment fees. Theoretically, a sale and leaseback term may not be realistic.
deal should see each party bearing their own costs. In such circumstances, parties will need to consider
whether any rent should be held back in escrow or in a rent
• SDLT relief deposit deed. This would give the investor certainty that
Providing certain conditions are properly met, the an element of the rent is already held securely in the event
leaseback aspects of a sale and leaseback deal may be that the new tenant does not perform.
exempt from stamp duty land tax (SDLT), meaning that the Depending on how much rent is held in this way, the
business will not need to pay any SDLT on the grant of the seller or tenant may be quite relaxed; from a cashflow
lease. The sale element is still likely to attract SDLT for the perspective they will know that they won’t actually have
buyer. to pay any rent for a prescribed period if it has already
been escrowed.If they have been able to negotiate a rent-
• But… loss of value to the business and director’s duties free period as part of the deal, this could leave the seller
The sale of an asset is obviously a key consideration for or tenant with a couple of years to focus on other parts of
directors as it could reduce the value of the business in any their business.
future business sale. As with any transaction, particularly those involving
It is important to remember that while directors owe a business assets, it is important to consider a number of
duty to the company, where a company falls into financial factors, but sale and leaseback might represent a sensible
difficulties and the risk of insolvency is real, those duties option for many commercial property owners in what is
can then extend to creditors. In exercising these duties, likely to be a challenging economic environment for years
they need to ensure they are minimising losses. to come. AM

James Polo-Richards is a real estate lawyer and partner in the commercial real estate team at law firm
Wright Hassall. He regularly advises property developers and property investors to help find practical
solutions to their challenges so that they can achieve their goals and realise the value of their assets in a
timely and cost-efficient manner.

20 Aesthetic Medicine • June 2020