Real estate leasing is an original and privileged way of financing part of the real estate assets of companies.
Companies can, through leasing companies, finance large buildings without initial input over a relatively long period (15 to 20 years), even though they may have difficulty obtaining bank loans on such terms and at reasonable rates.
When the company already owns the land, for example because the financing is linked to the expansion of an existing building or the construction of a new building, the lease implies a preliminary sale of the land to the company credit-lessor. This procedure is not always feasible and can prove to be far too burdensome.
Another solution exists. It consists of adding to the lease contract a lease with a construction ancillary to the first contract.
In other words, the business leases all or part of its land to the leasing company, which will construct the building and lease it under the lease to the owner of the land at the end of the lease of an option to purchase the constructions built. Failing to lift the option – theoretical assumption – it would nonetheless become the owner of the constructions under the building lease.
If the company raises the option before the term of the building lease, but before its 18 years, the building lease can be reclassified in ordinary lease, with the resultant taxation. If the company raises the option beyond the 18th year, the specific taxation of the construction leases relating to the return of the constructions to the lessor of the building lease is applicable (this is a property income and the tax is only deducted from the cost price less a discount of 8% per year of lease beyond the 18th year and an exemption beyond the thirtieth year).
In practice, the term of the lease must be at least 18 years so that the option can be exercised after the construction lease has reached 18 years.
Finally, if it is not the company that owns the land, but another company controlled by the operator, the mechanism is also interesting:
The company owning the land leases it to the construction company to the credit-bailers which builds the construction and leases it to the operating company.
In this case, the term of the lease can be less than 18 years. Indeed, since the operating company does not own the land, the exercise of the option does not result in the construction lease being extinguished by confusion. The building lease then lasts between the company owning the immovable, the lessor, on the one hand, and the operating company becoming the construction taker.