In a sale-leaseback transaction, who becomes the lessee?

• A. The buyer of the asset
• B. The seller of the asset
• C. The initial lessor
• D. The financier of the transaction

Answer: (B)

In a sale-leaseback transaction, the seller of the asset becomes the lessee. This type of arrangement occurs when an entity sells an asset to another party and simultaneously enters into a lease agreement with the buyer, allowing the seller to continue using the asset. Essentially, the seller converts the ownership of the asset into liquidity through the sale while retaining the right to use it by leasing it back.

The motivation behind this arrangement typically includes improving cash flow and balance sheet management, as it allows the seller to generate cash without giving up operational control over the asset. The buyer, in this case, steps into the role of lessor, since they are now the owner of the asset and leasing it back to the original owner (the seller). This structure effectively allows the seller to continue to enjoy the benefits of the asset without the burden of ownership.

In understanding this transaction, it’s important to note that the roles are straightforward; the seller becomes the lessee to retain operational use of the asset, while the buyer becomes the lessor upon purchasing the asset and leasing it back to the seller.