In Brazilian agribusiness, the search for quick capital amid rising interest rates has driven the growth of a structure already known in the urban real estate market: sale-and-leaseback. The logic is straightforward: the producer sells the rural property to an investor, receives immediate payment, and simultaneously signs a long-term lease agreement that allows them to remain on the property as the operator. The investor becomes the landowner and, in return, receives rent payments. When well structured, the transaction provides the seller with the financial breathing room they could not obtain through traditional credit, and the buyer with a discounted physical asset that generates predictable income.

From the perspective of companies in crisis, those that need to pay off debts or finance their expansion without compromising production, the instrument solves three problems at once: (i) it turns land into immediate cash; (ii) it keeps production active, since the producer remains on the farm as a tenant, avoiding stoppages and loss of market share; and (iii) it reduces leverage, as the debt is removed from the balance sheet and the lease payments, spread over the contract term, weigh less on cash flow.

For the investor, the sale-and-leaseback offers four main advantages: (i) a purchase discount, since the farm is usually acquired at a price below market value; (ii) future cash flow, with contracts generally signed for long terms (10 to 20 years) that ensure predictable payments over the period; (iii) capital protection, as if the tenant defaults, the property remains in the investor’s name, who can re-lease or sell the land without the need for judicial enforcement (except for filing an eviction action); and (iv) appreciation potential, because in addition to receiving rent, the investor also benefits from the historical appreciation of agricultural land, enhancing the overall return.

In many structures, there is a buyback option in favor of the producer: if they repurchase the land, the investor realizes the capital gain embedded in the target price; if they do not exercise the option, the investor retains the property and continues to receive lease payments, creating a balanced exit scenario with future liquidity and downside protection. The buyback option, if agreed upon, may be exercised at a predetermined price or according to a formula commonly used in the market that considers the appreciation of the land over the lease period.

In practice, the structure relies on two essential instruments: (i) a deed of sale and purchase, which immediately transfers ownership of the farm to the investor; and (ii) a lease agreement, promptly recorded in the property registry, ensuring the seller’s right to remain on the land as a producer. Thus, the seller knows in advance the price required to repurchase the property, while the buyer starts with a contractually guaranteed minimum return. In many cases, the buyback may occur gradually: as the producer fulfills the lease, they reacquire shares of the property over time, gradually reducing their exposure. To reinforce security, the transaction is usually accompanied by additional guarantees (such as a pledge of production, agricultural insurance, or both) that protect the investor’s cash flow and provide operational predictability for the tenant.

Despite the evident advantages, the success of a rural sale-and-leaseback operation depends on conducting thorough due diligence. The investor must examine, beyond ownership chain and possible encumbrances, the integrity of property records (title deed, georeferencing, and environmental registry), environmental compliance, and the solidity of land title documentation. The seller-lessee, in turn, must assess the economic impact of temporarily transferring ownership on their balance sheet and demonstrate the ability to meet all lease obligations throughout the contractual period.

When the interests converge—on one side, the seller seeking immediate liquidity without giving up operations, and on the other, the buyer pursuing a discounted real asset with a stable payment flow—the sale-and-leaseback becomes a special situations case in which the seemingly divergent goals of both parties are capitalized upon. The seller transfers the property for a price below its fair value, securing essential cash flow to preserve solvency, while the buyer acquires, at a discount, a real asset that generates lease income and includes an option for repurchase by the tenant.

This risk–return relationship benefits both sides: it reduces the default risk for the producer and gives the investor the security of owning the asset, with the added possibility of profiting from the future sale of the land.

By: Álvaro Scarpellini Campos
Special Situations | CPDMA Team