Why Sale-Leaseback Disputes End Up in Mediation — and How They Resolve

Sale-leaseback transactions are elegantly structured on paper. A business owner sells commercial real estate to an investor, monetizes the equity, and continues to occupy the property under a long-term lease. Both sides get what they want. The deal closes.

Then, sometimes, it doesn’t stay closed.

After 28 years of handling commercial real estate transactions, I’ve seen enough sale-leaseback disputes to know that the fault lines are almost always the same — and they’re almost always buried in the lease, not the purchase agreement.

Where the Disputes Come From

The purchase and sale agreement in a sale-leaseback transaction is typically well-negotiated. Both sides have counsel. Price, closing conditions, representations, and remedies are hammered out. But the lease — which governs the relationship for the next ten, fifteen, or twenty years — is often treated as secondary. It’s drafted quickly, based on a form, and signed under the pressure of the transaction timeline.

That compressed attention to the lease is where most disputes originate. The most common categories I see in disputes:

Maintenance and repair obligations. NNN leases transfer most maintenance responsibility to the tenant, but the line between landlord structural obligations and tenant maintenance duties is rarely defined with precision. A failing HVAC system, a roof that needs replacement, a parking lot that has deteriorated — each becomes a dispute about who bears the cost.

Rent escalation disputes. CPI-linked escalations sound straightforward until the CPI behaves unexpectedly. Fixed annual escalations can create tension when market rents diverge. Percentage rent clauses tied to revenue are particularly fertile ground for dispute.

Use and exclusivity clauses. The seller-tenant’s business evolves. They want to sublease a portion of the space. They change their business model. They want to sell the operating company. The buyer-landlord objects. The lease didn’t anticipate any of it.

Option disputes. Renewal options, purchase options, and rights of first refusal all depend on notice mechanics that tenants routinely mishandle. A missed deadline by a few days can cost a tenant a multi-million-dollar property.

Why Mediation Works for These Disputes

Sale-leaseback disputes are particularly well-suited to mediation for a simple reason: both parties still need each other after the dispute resolves. The landlord needs a creditworthy, stable tenant. The tenant needs continued occupancy of a property that is often central to its operations. Litigation destroys that relationship. Mediation preserves it — or, at minimum, structures a clean exit.

A mediator with deep transactional experience brings something a litigator doesn’t: fluency in the deal logic. I understand how these leases were drafted, what the parties intended when they signed, and what a commercially reasonable resolution looks like. That context speeds the process considerably.

Most commercial real estate mediations resolve in a single day. Some require a follow-up session. Very few go longer than that when the parties enter the room prepared.

What Counsel Should Know Before the Session

If you’re representing a party in a sale-leaseback dispute heading to mediation, a few things improve outcomes meaningfully:

Know your client’s true priority. Is it continuing occupancy at any cost? Is it a clean exit from the lease? Is it monetary recovery? Clients often present all three as equally important. They’re not. Clarity on what the client actually needs — versus what they want — is the most valuable preparation you can do.

Bring the deal history. The LOI, the original PSA, the lease draft redlines, the correspondence during negotiation — all of it matters. In my experience, what the parties thought they agreed to is often more important than what the final document says, especially when a court would likely consider extrinsic evidence.

Prepare your client for commercial compromise. In litigation, winning means the other side loses. In mediation, resolution means both sides give something. A client who enters the room expecting vindication is a client who leaves without a settlement. Setting expectations accurately before the session is counsel’s most important job.

If you have a commercial real estate dispute — whether a sale-leaseback, a landlord-tenant matter, or a transaction that went sideways — and you’re considering your options, I’m glad to discuss the situation confidentially.