National Real Estate Exam (PSI)ContractsMedium
A business owner sells his warehouse to an investor for cash and, as part of the same transaction, signs an agreement to lease the warehouse back from the investor so the business can continue operating in the space. This type of arrangement is known as a:
- AGround lease
- BSale-leaseback
- CPercentage lease
- DContract for deed
Show answer & explanationAnswer & explanation
Correct answer: B. Sale-leaseback
A sale-leaseback occurs when a property owner sells the property and simultaneously leases it back from the new owner, allowing the seller to free up capital while retaining use of the property as a tenant. This differs from a ground lease (land only, tenant builds improvements) and a contract for deed (installment sale with no immediate title transfer).
Why the other options are wrong
- A. A ground lease involves leasing vacant land, typically for the tenant to build on, not selling and leasing back an improved property.
- C. A percentage lease ties rent to a tenant's sales revenue and is unrelated to this ownership-transfer scenario.
- D. A contract for deed is a financing arrangement where the seller retains legal title until payments are complete.
Sale-Leaseback
A transaction in which an owner sells a property and simultaneously leases it back from the buyer, converting equity into cash while retaining occupancy.
- Seller becomes the tenant immediately after closing
- Often used by businesses to raise capital from real estate assets
- Buyer becomes the landlord/investor collecting rent
Memory trick: 'Sell it, then dwell in it' — sale-leaseback lets you cash out and stay put