You may have heard the news that a well-known retailer has sold and leased back their Watford headquarters. But what exactly is a "sale and leaseback"?

The retailer owned a 100,000 square feet building, as well as the surrounding land. It sold them for approximately £13.5 million, and in return has been granted a 10-year lease.

Read more: Mothercare Watford sells HQ for £15 million

The point of such an arrangement is that a business owner has to manage their assets carefully, and owning freehold land may not be the best way of doing this. The value of land has increased substantially over the years but can produce very little other benefits apart from the right to occupy the land.

If you own the freehold of your business, selling it to an investor means you can continue operating as normal but with extra cash in the bank - over £13 million in this case. This can in turn be used to help manage your finances better, expand your business, or to pay cash out to the owners. Sometimes business owners also sell their freehold to their own pension funds, who then lease the premises back to the business.

For an investor, the rent they'll receive on the land and buildings will provide a good return for their investment. There may also be some longer term benefits such as being able to redevelop the site in the future when and if the lease comes to an end.

Clearly, there are some risks that have to be managed on both sides. As a business owner, you have to understand that the lease will only last so long and that you may have to leave if it is not renewed.

  • David Marsden is a partner in the commercial property team at award-winning law firm VWV, which has offices in Clarendon Road, Watford