What is an exception to the potential benefits of a sale-leaseback arrangement?

A sale-leaseback arrangement is a financial transaction where one party sells an asset and simultaneously leases it back from the buyer, allowing the seller to continue using the asset while gaining immediate cash from the sale.

In this context, while a sale-leaseback can provide various benefits such as tax advantages, access to capital, and the establishment of a long-term lease agreement, it may not readily enhance the liquidity of the investment.

Liquidity refers to how easily an asset can be converted into cash without affecting its market price. In the case of a sale-leaseback, while the original seller does receive cash influx from the sale of the property, the liquidity of the investment can be diminished because the seller is now tied into a long-term lease agreement. This means that even though they have cash on hand, they may have limited flexibility to liquidate or use that cash effectively, as they still have ongoing obligations tied to the lease.

Thus, while the arrangement can serve as a means to improve cash flow and provide liquidity initially, the longer-term nature of lease commitments may dampen potential future liquidity, as the seller is committed to certain payments and use of the asset. Therefore, among the options presented, the impact on liquidity stands out as a meaningful exception