A Sale and Leaseback occurs when the owner of equipment sells their equipment to a leasing company and then leases the same equipment back from the leasing company; essentially, the seller of the equipment becomes the Lessee and the purchaser becomes the Lessor.
Usually, Sale and Leasebacks are considered to be True or Tax Leases – a contract in which one party (the “Lessor”) gives another party (the “Lessee”) the exclusive right to use and possess its property or equipment (the “Leased Property” or “Leased Equipment”) for a specified period of time. The Lessee is then required to make monthly rental payments to the Lessor.
At the end of the term of the lease, the Lessee can return the equipment, release the equipment, or purchase the equipment from the Lessor. The Lessor will generally be treated as the owner of the leased property for federal tax purposes and will be entitled to the related tax benefits.