A sale and leaseback is an arrangement where an entity sells one of its assets to a lender and then immediately leases it back for a guaranteed minimum time period. By doing so, the entity obtains cash from the sale of the asset that it may be able to use more profitably elsewhere, while the lender obtains a guaranteed lease. This approach also provides the seller with the cash to pay down its debt, thereby improving the financial position reported on its balance sheet. The downside from the perspective of the seller is that the seller can no longer charge off any depreciation expense related to the asset in question, which reduces the related tax benefit.
A sale and leaseback is typically used for a building, but can also be arranged for other large assets, such as production machinery, airplanes, and trains.