As Christmas Profits Rise, Landlords Open Their Eyes – A Brief Overview On Turnover Rent…

The clue is in the name as to how the rent is determined but this blog will provide a brief explanation of when turnover rent may be used and how it is calculated. Turnover rent is most common where the tenant operates a retail store. Despite uncertain and challenging trading in today’s retail sector, with the uplift in online shopping and ‘click and collect’ options, Turnover rent is still used in some commercial leases.

In effect the Landlord is taking on an element of the Tenant’s trading risk but equally the Landlord benefits more when the Tenant is trading well. The idea is that this could help to promote a good relationship between the parties as the Landlord has an incentive to be more flexible when helping the Tenant to raise its profits (e.g. in a Shopping Centre).

Turnover Rent is usually calculated by reference to a base rent of a percentage of the market value, in addition to a percentage of the Tenant’s gross annual turnover.

It seems straightforward, however the difficulties arise when calculating what is included and excluded from the turnover that the Tenant makes at the specific property, which then contributes to the rent that they will pay. With the increasing rise in online sales that may be received in store, yet ordered online, or alternatively orders which are made at the store/online but delivered home it can be difficult to ascertain the point at which performance of the sale takes place. Many customers may try things on at the store or go in to see the item in person but then opt to purchase them online in order to save some money. This creates challenges in ascertaining which sales should be included in the store’s annual turnover.

The ultimate position may vary depending on what the parties negotiate and ultimately the bargaining power on both sides, which then needs to be carefully and thoroughly drafted in the Lease in order to ensure that these provisions are clear and unambiguous. If you would like further information on Turnover rents or need advice on your provisions please do not hesitate to contact our Commercial Property team on 0800 689 0831 or send any question through to Forbes Solicitors via our online Contact Form.

Trishna Modessa

About Trishna Modessa

Trishna is a paralegal in the Commercial Property department at Forbes Solicitors. Within her blogs Trishna deals with all aspects of commercial property including leases (from both landlord and tenant perspective), licences, acquisitions and disposals along with recent updates within the property sector.
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