Why practice owners use this structure
Equity in a building is illiquid and generates no return beyond appreciation you cannot access. A sale-leaseback converts it into deployable capital: funding expansion or a second location, buying out a retiring partner, paying down higher-cost practice debt, or diversifying net worth away from a single concentrated asset. It is also a common step ahead of a practice sale, because separating the real estate from the practice usually produces a better combined outcome than selling them together.
The lease terms are the real negotiation
Sale price and lease terms are two sides of the same transaction, and they trade against each other. A higher rent supports a higher sale price, because the buyer is purchasing an income stream — but you live with that rent for the life of the lease. The terms that matter most are initial lease length, renewal options, annual escalations, and which party carries responsibility for roof, structure, and major systems. We negotiate these as a package rather than chasing the headline number, because a strong price attached to a rent you cannot sustain is a bad trade.
Tax treatment worth planning for
A sale-leaseback is a sale, and it triggers capital gains on the appreciation plus depreciation recapture on what you have written off. Lease payments afterward are generally deductible as a business expense, where mortgage principal was not. Some owners pair the sale with a 1031 exchange into other investment property to defer the gain. The right structure depends on your basis, holding period, and broader tax position — coordinate it with your CPA before going to market, not after an offer is in hand.