Sale-Leasebacks for Hotel and Apartment Building Owners: How They Work and When They Fit

In a sale-leaseback, an owner sells a property to an investor and at the same time signs a long-term lease to keep using it. The seller gets the cash value of the real estate and stays in the building; the investor gets a tenant with a long lease and a predictable rent.

It is a way to raise capital, not a way to get it for free. This article explains how the arrangement works, where it fits, and what an owner-operator should check. It is general information; tax and accounting treatment depend on your circumstances, so involve your accountant and lawyer early.

How it works

A typical sale-leaseback

1. The owner decides what to sell

   Usually the land and building, while keeping the operating business: the hotel company, its staff, brand agreement and guests.

2. Price and rent are set together

   The investor prices the property from the rent it will receive. A higher rent supports a higher price, and the other way round.

3. The parties sign the sale and the lease

   The lease is usually long, often with renewal options, and usually net: the tenant pays taxes, insurance and maintenance.

4. The sale closes

   The seller receives the proceeds, repays any mortgage, and keeps the balance for the business or other investments.

5. The seller operates as a tenant

   Rent replaces mortgage payments. The investor owns any future rise or fall in the property’s value.

Where sale-leasebacks fit, and where they do not

Sale-leasebacks work best when the occupant runs a business in the building and is a credible long-term tenant. That points to:

• Hotels, where the operating company can sell the real estate and keep running the hotel under a lease, freeing equity for renovations or new properties;
• owner-occupied commercial property, such as a company’s offices, warehouse or plant;
• single-tenant retail and restaurant buildings occupied by an operator with good credit.

They are uncommon for apartment buildings. The owner of an apartment building is not the occupant; its tenants are. An owner who wants cash out of an apartment building normally refinances or sells outright. Where a leaseback-like structure is used for residential property, it is usually a master lease to an operator, which raises questions under residential tenancy law that need a lawyer’s input.

What the owner gains and gives up

Sale-leaseback from the seller’s side

Pros

• Converts equity in the property into cash without giving up use of it
• Can raise more than a mortgage, which is limited by a loan-to-value ratio
• Replaces debt and its covenants with a lease
• Rent on business premises is generally a deductible business expense
• Lets an operator put capital into the business rather than the building

Cons

• The owner gives up any future increase in the property’s value
• Rent is a long-term fixed commitment, often rising every year
• Net leases leave taxes, insurance and repairs with the tenant anyway
• The sale can trigger capital gains tax and depreciation recapture now
• At the end of the lease, the operator may have to renew on the landlord’s terms or move

The cost of a sale-leaseback is the rent. Comparing it with a mortgage means comparing the rent, including increases, with the interest you would pay on a loan, and then adding the value you give up when you no longer own the property’s appreciation.

Accounting: it does not take the obligation off the balance sheet

Older articles describe sale-leasebacks as a way to move assets and liabilities off the balance sheet. For companies that report under IFRS, which Canadian publicly accountable enterprises use, that is out of date. IFRS 16, effective for periods beginning on or after January 1, 2019, puts most leases on the lessee’s balance sheet.[1]

IFRS 16 also asks first whether the transfer is a sale at all, applying the revenue standard, IFRS 15. If it is not, the seller keeps the asset on its books and records the proceeds as a financial liability, much like a secured loan.[2] A substantive option for the seller to buy the property back is a common reason a transfer fails the test: under IFRS 15, a repurchase right in the form of a call option or forward means control has not passed.[3] Private companies on other frameworks, and U.S. companies under U.S. GAAP, have their own rules; ask your accountant before you sign.

Tax points to check

• The sale is a sale. Any gain on the property is taxable, and depreciation previously claimed may be recaptured into income. Canada’s rental income guide notes that land is not depreciable property,[4] so the split between land and building affects both the recapture on sale and the deductions afterwards.
• Rent versus depreciation. After the sale you deduct rent instead of interest and depreciation. Whether that is better depends on the rent, the building’s remaining depreciation and your tax rate.
• Sales tax. In Canada, the sale of a hotel or other commercial property is generally subject to GST/HST, usually self-assessed by a registered buyer.[5]
• A repurchase option can change the tax treatment, just as it can change the accounting. Structure it with advice.

What to negotiate

1. Rent and increases. The single biggest term. Fixed annual increases compound over a long lease.
2. Term and renewals. Long enough to protect the business, with renewal options at fair market or pre-agreed rent.
3. Repair obligations. Who pays for the roof, structure and major systems.
4. Assignment and subletting. The right to sell the operating business with the lease, which matters to a hotel operator’s exit.
5. Purchase rights. A right of first refusal or option to buy back, bearing in mind the accounting effect above.

Sources

1. IFRS 16 Leases — IFRS Foundation. Checked 2026-10-12.
2. IFRS 16 makes significant changes to sale and leaseback accounting — Grant Thornton International, 2019. Checked 2026-10-12.
3. Sale and leaseback: for lessees and lessors, IFRS 16 — KPMG IFRG, February 2023. Checked 2026-10-12.
4. Rental Income (Guide T4036) — Canada Revenue Agency. Checked 2026-10-12.
5. Real Property and the GST/HST (GST/HST Memorandum 19-1) — Canada Revenue Agency. Checked 2026-10-12.