Sale-Leaseback: How to Sell Your Business and Keep the Building

You’ve spent 25 years paying down the mortgage on the shop. The business is what a buyer wants, but the building is what you actually own outright. Selling the business doesn’t have to mean selling the building too, and for a lot of trades owners, the building is where a second stream of income after the sale actually comes from.

Table of Contents

• Two Ways to Keep the Building After You Sell
• What Rent to Charge, and What the Market Actually Pays
• What You Give Up When You Stop Owning the Business That Uses the Building
• The Guarantee That Can Outlive the Sale
• Where a Leaseback Fits Next to Your Other Options
• Questions to Settle Before You Sign a Lease With the New Owner

Two Ways to Keep the Building After You Sell

A plumbing or HVAC company that owns its shop and yard usually has two separate assets wrapped into one deal: the operating business and the real estate under it. Most buyers only want the first one. That gives you a real choice most sellers don’t realize they have.

The first option is the one most trades owners actually use. You sell the operating business, but you keep the real estate in your own name (or an LLC you control) and sign a lease with the new owner. You become the landlord. The buyer becomes your tenant. Rent shows up monthly, on top of whatever you were paid at closing.

The second option is a true sale-leaseback in the way commercial real estate investors use the term. You sell the real estate as well, usually to an investor rather than the person buying the business, and the business (now under new ownership) signs a lease with that investor as landlord. You get more cash at closing but no ongoing rent, and you’re out of the landlord role entirely.

The first structure is more common for a $1M to $10M trades business, because it lets you keep a familiar asset and a predictable income stream without needing to find a real estate buyer separately. The second is worth considering if you want full liquidity now and don’t want tenant management, repairs, or vacancy risk as part of your retirement.

What Rent to Charge, and What the Market Actually Pays

Setting rent by feel, either too low because you don’t want to squeeze the new owner or too high because you want to maximize income, causes problems either way. Anchor it to what the market actually supports.

Commercial real estate data cited by CBRE put single-tenant net-lease cap rates at roughly 6.8% overall in early 2026, with industrial properties, the category most shops, yards, and warehouses fall into, trading closer to 7.15% (Commercial Property Executive, citing CBRE data). That figure is a way to sanity-check a building’s value and the rent it should support, not a rule for every property. Get a local commercial appraiser or broker to confirm comparable rent for your specific building and market.

There’s a separate check worth running against the business itself, not just the building. Some deal advisors use a rule of thumb that if annual rent exceeds roughly 20% of the business’s EBITDA, the lease is over-levering the company (Borgman Capital). That’s not a proven benchmark from a regulator or a large dataset, but it’s a useful gut check. Rent set too high can strangle the new owner’s cash flow in year one, which is bad for them and, if the lease depends on the business staying healthy, eventually bad for you too.

What You Give Up When You Stop Owning the Business That Uses the Building

Keeping the building isn’t free of tradeoffs. Once you’re a landlord instead of an owner-operator, a few things change.

You lose the mortgage interest deduction tied to a business use of the property once your own operating income stops flowing through it, and rental income is taxed differently than the wages or draws you took as an owner. If you ever sell the building itself down the road, straight-line depreciation you’ve claimed over the years gets recaptured. Unrecaptured Section 1250 gain on real property is taxed at a maximum federal rate of 25%, higher than the standard long-term capital gains rate most sale proceeds qualify for (The Real Estate CPA). None of this makes keeping the building a bad move. It means the income isn’t tax-free just because it’s familiar, and a CPA who handles real estate should run the numbers before you commit.

You also take on ordinary landlord risk: vacancy if the buyer’s business fails, maintenance and capital repairs on a building you may not walk past every day anymore, and the administrative work of actually being a landlord, even a landlord with one tenant.

The Guarantee That Can Outlive the Sale

This is the part owners miss most often. Selling the business is supposed to be the moment your personal liability winds down. A lease can quietly extend it.

If the new owner’s lender requires a personal guarantee on the lease as a condition of approving their acquisition financing, or if any financing tied to the building runs through you as an individual rather than purely through the entity, that exposure doesn’t end when the business sale closes. It runs for as long as the lease does. Read every document connected to the building, not just the purchase agreement for the business, before you sign anything.

Where a Leaseback Fits Next to Your Other Options

A leaseback is one way to keep income coming after a sale. It’s rarely the only one, and it works best combined with, not instead of, a clear read on what you actually need to live on. If you’re weighing this against other structures, seller financing, an earnout, or rollover equity each carry a different mix of income, risk, and control. A leaseback is the one most directly available to an owner who already owns real estate the business needs, which is exactly the position a lot of trades owners are in.

Before choosing any combination of these, work backward from how much you actually need to retire on. Rent from a building you already own is one of the more predictable pieces of that puzzle, since it doesn’t depend on the new owner hitting performance targets the way an earnout does.

Questions to Settle Before You Sign a Lease With the New Owner

Before you agree to keep the building and lease it back, get clear answers on a short list of things:

1. What does an independent appraiser or commercial broker say the market rent actually is? Not what feels fair to you or the buyer.
2. What’s the lease term, and what happens at renewal? A short term gives you flexibility. A long term gives the buyer certainty they may need for their own financing.
3. Who’s responsible for major repairs, taxes, and insurance? Get this in writing, not assumed.
4. Does any financing tied to the building require your personal guarantee? If so, for how long, and under what conditions can it be released.
5. What happens if the buyer’s business struggles or the sale to them falls through entirely? Know your fallback before you need one.

Bring these questions to a commercial real estate attorney and a CPA who handles both real estate and transaction tax, not just the same generalist who prepared your business’s annual return. The lease is a separate contract from the sale, and it deserves separate scrutiny.

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The Owner’s Shortlist connects business owners with vetted specialists across financing, valuation, taxes, and legal and estate planning. Visit The Owner’s Shortlist to find someone who can help structure a sale that keeps income coming in after you hand over the keys.