Editors' Synopsis: This Article updates and revises an article published in the Spring 1989 edition of the Real Property, Probate and Trust Journal. The Article addresses how different courts have treated sale and leaseback transactions, with particular emphasis on examining the risk of judicial recharacterization in the bankruptcy context. The Article will be a resource for lawyers who wish to structure transactions that avoid the unwanted consequences of judicial recharacterization.

I. INTRODUCTION

This Article is a revision, expansion, and update of an article entitled Real Estate Sale and Leaseback Transactions and the Risk of Recharacteriztion in Bankruptcy Proceedings, written by Thomas C. Homburger and Gregory R. Andre, and originally published in the Real Property, Probate and Trust Journal in 1989.' The courts continue to grapple with sale and leaseback transactions, especially in the context of bankruptcies, and to bring order to an area that seems to be decided on a case-by-case basis at first glance. In addition to reviewing the new legal developments since 1989, the Article attempts to ascertain whether there is any trend to these judicial decisions.

II. SALE AND LEASEBACK TRANSACTIONS

A. Basic Types of Sale and Leaseback Transactions

The increasing complexity of sale and leaseback transactions creates a variety of innovative modifications and combinations. Nevertheless, as discussed more extensively in the original article,2 the basic framework of a sale and leaseback can be categorized as one of three different types. The first type of sale and leaseback transaction involves improved land and includes all of the improvements on the land. The second type also involves improved property, but either only the land or the improvements are sold and leased back. The third type involves only personal property. Of these three types of sale and leaseback transactions, the third, involving only personal property, is by far the most commonly seen. However, this type of transaction is typically governed by the Uniform Commercial Code and is outside the scope of this Article.

B. Advantages and Disadvantages to the Parties

The parties to a sale and leaseback transaction choose the sale and leaseback vehicle for a myriad of reasons. While many of these reasons may be particular to a certain transaction, some advantages to both the seller-lessee and buyer-lessor typically predominate.