What is a sale and lease-back arrangement?

A sale and lease-back arrangement involves a business selling an asset, typically property or equipment, to a buyer and then immediately leasing that same asset back from the new owner. This strategy allows the company to free up capital that was previously tied up in the asset while still retaining the use of it for operations. It can be particularly beneficial in improving cash flow and financial flexibility, as the business can use the proceeds from the sale for other investments or expenses.

In this context, the other options involve different transactions or arrangements that do not capture the specific dynamic of selling an asset and leasing it back. Buying equipment outright means the business owns the asset without any leasing component. Leasing equipment without purchase does not involve a sale; instead, it is a straightforward leasing agreement. Renting out office space refers to leasing arrangements, but it does not involve the element of ownership transfer that defines a sale and lease-back arrangement.