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Real Property • Security Interests in Real Estate
PROP#205
Legal Definition
Some landowners opt to sell their property for cash and then immediately lease it back for a long period of time, which some courts treat as a hidden mortgage.
Plain English Explanation
Sale-leasebacks are agreements where an owner sells their property and then immediately leases it back from the buyer as part of the same transaction. These are most commonly seen in commercial real estate transactions and are useful when the seller needs access to capital but still wants to make use of the property.
If they are done in a way that makes a court feel as if they are actually just a sneaky mortgage, the court will treat them like a mortgage instead of a lease. Some factors the court considers are (1) whether there is an option for the person leasing the property to repurchase it, (2) whether the payments being made on the lease appear to be about the same amount as would have been paid on a mortgage, (3) and, if there is an option for repurchase, the option is for substantially less than the market value of the property.
If they are done in a way that makes a court feel as if they are actually just a sneaky mortgage, the court will treat them like a mortgage instead of a lease. Some factors the court considers are (1) whether there is an option for the person leasing the property to repurchase it, (2) whether the payments being made on the lease appear to be about the same amount as would have been paid on a mortgage, (3) and, if there is an option for repurchase, the option is for substantially less than the market value of the property.
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