You own the warehouse, and your business runs out of it. You may want the money tied up in the building, but you do not want to move the trucks, the racking, the crew, or the customers who know where to find you. A sale-leaseback is the deal built for that spot: you sell the building, then rent it back and keep running your business in the same place. This guide covers what the arrangement is, who it tends to suit, how the rent is set, what federal tax rules say about rent and leases, and the lease terms worth settling before anyone signs.
What a Sale-Leaseback Is
A July 2020 article in the Journal of Accountancy describes a sale and leaseback as a contract in which a seller sells an asset to a buyer and then enters into a second contract to lease the asset back from that buyer. The first benefit it lists for the seller is an immediate inflow of cash that can be deployed in some area of the business. That article is now marked as archived, so read it as a definition, not as a guide to current accounting rules.
In plain terms, the money tied up in the walls and the land comes out, while the business keeps its address, its docks, its yard and its routine. What changes is the paperwork: you stop being the owner, you become the tenant, and you pay rent to the new owner under a lease. For an owner who already runs a business in the building, that can be simpler than selling, packing up and moving.
When a Sale-Leaseback Tends to Make Sense
Many owners who run a business in their own warehouse have been in the building a long time, and the real estate can end up being a large part of what the company owns. A sale-leaseback is usually worth a look in situations like these.
- The money is in the building. If the business needs cash for equipment, hiring, a new product line or paying down other debt, the building may be where most of it sits.
- The location still works. If your docks, power, yard, ceiling height and access roads still fit the operation, moving would mean paying to rebuild all of that somewhere else.
- A handoff is coming. Owners planning a retirement or passing the business on sometimes want the real estate settled first, so the business and the building are no longer tied together.
- A move would hurt. When customers, workers and suppliers all know where you are, staying put has a value of its own.
It tends to fit less well if you expect to outgrow the space soon, if you want the option to buy the building back later, or if the business could not comfortably carry rent. The buyback point matters for tax reasons covered further down.
How the Rent Gets Set
In a sale-leaseback, the price and the rent are tied together, because the building is being sold with a tenant already in place, and that tenant is you. A higher rent can support a higher price, and a lower rent usually means a lower one, so look at the two numbers as one package rather than as separate questions. The rent also has to be one your business can pay every month for the whole lease, in slow years as well as good ones.
We look at what similar industrial properties sell for, the rent the property earns or could earn, its condition, and the cost of any repairs it needs.
A market report gives you a rough check on whether a proposed rent is in the range of what other industrial landlords are asking. Cushman & Wakefield’s Q3 2026 MarketBeat for Chicago puts the average asking net rent at $7.53 per square foot, up 3.9% from a year earlier. Its Dallas/Fort Worth report for the same quarter puts asking rents at a new high of $9.76 net per square foot.
| Market | Overall asking net rent | Warehouse/distribution | Manufacturing |
|---|---|---|---|
| Chicago | $7.53 | $7.20 | $7.55 |
| Dallas/Fort Worth | $9.76 | $9.55 | $8.46 |
In the table, the Chicago figures are net asking rents per square foot per year, and the Dallas/Fort Worth figures are net rents per square foot as that report prints them. These are one firm’s figures for one quarter. Newer quarters and other reports may differ.
An asking rent is what landlords advertise, which is not always what a signed lease ends up at. A net rent usually means the tenant also pays some or all of the property taxes, insurance and upkeep on top of the base rent, so compare like with like. Your own building’s age, ceiling height, dock count, yard, power and location can all push its fair rent above or below a market average.
What Federal Tax Law Says About Business Rent
Under 26 U.S. Code § 162, the tax code allows a deduction for all the ordinary and necessary expenses paid or incurred during the taxable year in carrying on any trade or business. That section’s list includes rentals or other payments required to be made as a condition to the continued use or possession of property used for the business, where the taxpayer has not taken or is not taking title or has no equity in the property. After a sale-leaseback you no longer hold title, but terms such as a buyback right can raise the question of whether you still keep a stake in the building. Whether your particular rent is deductible, and how much, is a question for your accountant, not for this page.
The IRS adds a warning in Publication 544: some agreements that seem to be leases may really be conditional sales contracts. It says the intention of the parties can help tell a sale from a lease, that there is no test or group of tests to prove what the parties intended, and that each agreement is considered on its own facts and circumstances. So the terms around the lease matter, not just the label on it. A buyback right, a rent far from market, or an unusually low purchase price at the end of the lease are the kinds of terms to put in front of your tax adviser before you sign.
Taxes on the Sale Itself
Publication 544 defines section 1231 transactions as sales and exchanges of real or depreciable property held longer than 1 year and used in a trade or business. It also tells the reader that if there is a gain from a section 1231 transaction, the first step is to determine whether any of that gain is ordinary income under the depreciation recapture rules. It notes that real property subject to an allowance for depreciation, other than section 1245 property, is section 1250 property, and that a fee simple interest in land is not included because it is not depreciable. Sales of business property are reported on IRS Form 4797, Sales of Business Property.
This is a summary, not tax advice. Your result depends on how long you have owned the building, what you have deducted over the years, how the price is split between the land and the building, and how the deal is written. Ask your accountant those questions early, because the answers can change the price and the rent that make sense for you.
Lease Terms to Settle Before You Sign
A sale-leaseback is two agreements signed together: the sale and the lease. Most of the long-term effect on your business sits in the lease, so read it as closely as the price.
- The length. How many years you need in the building, and whether you want options to renew, so the business is not forced to move at a bad time.
- The rent steps. Whether the rent stays flat or rises each year, and by how much, so you can budget the whole term.
- The costs on top of rent. Who pays the property taxes, the insurance, roof and structural repairs, paving and yard upkeep, and the building systems.
- The space you keep. Whether the lease covers the whole building and yard or only part of it, and what happens to any extra land.
- The way out. What happens if the business shrinks, grows, is sold or closes, including whether you may sublet or hand the lease to a new owner of the business.
- The use. That the lease lets you keep running your current operation, including outdoor storage, truck traffic and working hours.
Ask your attorney before counting on a use. A real estate attorney who reads commercial leases every week can tell you which terms are normal and which ones to push back on.
Selling and Leasing Back vs. Selling and Moving
If the business is winding down, relocating or shrinking anyway, a plain sale may be simpler, because there is no lease to negotiate and no rent to carry. If the building still fits the business, a sale-leaseback keeps the operation where it is while turning the real estate into cash. Either way, you are selling a building, so the usual steps still apply: the title work, any survey and environmental reports, and a purchase agreement. A title company or closing attorney handles the title search and the closing paperwork. As in any sale, the mortgage is paid off from the sale money at closing.
Questions Owners Ask
What is a sale-leaseback in real estate?
It is a sale of a property in which the seller stays on as a tenant, under a lease signed with the buyer as part of the same deal. The seller gets the sale money, and the buyer gets a building with a tenant already in it.
Is rent deductible after a sale-leaseback?
The tax code’s rent provision covers rentals required for the continued use or possession of property used for the trade or business, where the taxpayer has not taken or is not taking title or has no equity in the property. Whether your own rent qualifies depends on how the deal is written, so ask your accountant.
I run my business in the warehouse. Can I still sell it?
Yes. We buy owner-occupied warehouses. Want to stay in the building after you sell? Ask us about a sale-leaseback.
Who pays closing costs?
It depends on the property and the deal. The split is written into the purchase agreement, so you see it before you sign.
Didenko Capital is a direct buyer of industrial real estate. Asking for an offer is free, and you are not committed to anything unless you sign a purchase agreement. Tell us about your property and we’ll get back to you.
Sources
Facts on this page come from the public sources listed at the bottom, read on the dates shown.
- Cornell Law School, Legal Information Institute (LII), 26 U.S. Code § 162 – Trade or business expenses, web page (read 2026-10-14).
- Internal Revenue Service (IRS), Publication 544 (2025), Sales and Other Dispositions of Assets, 2025 edition (for use in preparing 2025 returns), web page (read 2026-10-14).
- Journal of Accountancy (AICPA & CIMA), Accounting for sale and leaseback transactions, July 1, 2020 (page marked as from the archives) (read 2026-10-14).
- Cushman & Wakefield, MarketBeat Chicago Industrial, Q3 2026 (4-page PDF, file dated 2026-10-06) (read 2026-10-14).
- Cushman & Wakefield, MarketBeat Dallas/Fort Worth Industrial, Q3 2026 (4-page PDF, linked from the publisher’s page as the Q3 2026 report) (read 2026-10-14).