Capital raising option that allows you to dispose off an asset and still utilise it

Possession of the land is necessary to enable you to continue with other extra income-generating activities. FILE PHOTO | SHUTTERSTOCK

Dear Cathy,

I am writing to you on recommendations on how we may raise capital without taking a loan or selling shares in our company. My grandmother left me 20 acres of land in Mt. Kenya region on which sits a 10-bedroom house.

I contributed the 20 acres (including the house) as my capital into a company owned between me and some investors. We have been hotelpreneurs for the last 10 years and business is good. We currently offer accommodation facilities in the house, which occupies half acre. On the rest of the land, we offer camping, nature walks, team-building facilities, event grounds and gaming.

We want to expand our business and build more accommodation facilities and therefore require a lot of capital. We also require access to all 20 acres due to the other income-generating activities we offer such as gaming. However, as a company, we have decided that we do not need to own all the land. What are some innovative funding options you may recommend to us? --Henry Kamau

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Dear Henry, I think I may have an innovative funding solution for your company! A sale and leaseback agreement sounds perfect given your unique needs.

I have understood your needs to be threefold. One, you want to raise a lot of capital for your expansion and especially to build and operate the extra accommodation facilities. Two, you have mentioned that you do not necessarily need to own the entire 20 acres. Third, you want a model where you still have possession of the land without necessarily owning the land.

As you have pointed out, possession of the land is necessary to enable you to continue with other extra income-generating activities such as team building and camping.

A sale and leaseback agreement is one in which the owner of an asset sells it to a buyer and simultaneously leases the same land back from the buyer. It allows you to sell a portion of your land to raise capital for your activities, but at the same time secures your usage of the same land as a tenant, for many years.

It all starts with getting the right buyer and declaring your intention early on. The right buyer will agree to buy the land from you and also agree to lease it back to you. The right buyer would be probably one who has no immediate use of the land but instead invests in the land for rental income.

Win-win

It is a win-win for both parties. It allows you to raise capital from the sale and also to use the land even after selling it. For the buyer, it allows him to immediately earn rental income even after purchase. In both cases, there is a lot of security as this intention shall be secured through a sales and leaseback agreement.

The agreement provides the usual sale of land terms but also provides for the terms upon which you would be leasing the land. For example, it allows you to lock in a lease period and allows parties to even set the rent payable.

It is a process that will require the services of a good property lawyer as the right documents ought to be drafted. The transaction will involve the transfer of the property to the buyer and drafting a lease in your favour.

A sale and leaseback agreement allows you to access a lot of capital without losing the use of assets. You only transfer ownership.

Ms Mputhia is the founder of C Mputhia Advocates | [email protected]

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