Specialist Commercial Property associate Fiona Knight from Frettens answers your questions about an increasingly hot topic within commercial property: turnover rent.

What is a turnover rent?

Essentially, a turnover rent is exactly what it sounds like. A tenant pays a percentage of their turnover rather than a fixed monthly or annual fee to their landlord. A turnover rent is also commonly referred to as a turnover-based rent.

What is a turnover lease?

A turnover lease, or turnover-based lease, is a lease agreement that includes the terms and conditions of a turnover rent.

How does turnover rent work?

When the tenant’s business does well, and their turnover rises, the rent they pay will increase. But when the business struggles, and turnover falls, the landlord will receive less rent.

As a result, turnover rents are particularly attractive to tenants in difficult trading circumstances, such as those currently facing many high street retailers.

Many in the industry are forecasting that turnover rents will become more common as tenants try to find ways of reducing overheads and surviving the economic impacts of the pandemic, even with the current eviction ban in place.

Do landlords have to accept a turnover rent?

Legally, there is no obligation in almost all circumstances (for an example of an exception, you can read Malcolm Niekirk’s article on the Clarks shoes CVA).

Negotiating a turnover rent can mean that a commercial unit remains occupied, but income will be lower while a tenant’s turnover is low. It is a commercial decision for a landlord to make, but it is crucial that any turnover rent agreement is well-negotiated and drafted.

So, how do you negotiate a turnover lease?

Whether you are a landlord or a tenant, there are advantages and disadvantages of moving to a turnover-based rent. To read about these advantages and disadvantages, you can read Fiona’s detailed article in full here.

When negotiating the lease, it is extremely important to:

• Understand the tenant’s business model
• Decide which model of turnover lease works best for both parties
• Have agreements in place for proof of turnover
• Establish whether the agreement is temporary
• Include mechanisms for resolving any disputes

Turnover lease solicitors

At Frettens, our specialist commercial property team is one of the best-resourced and most experienced in the area, and are recommended in the Legal 500 guide.

The team also work closely with the firm’s dispute resolution and insolvency departments on turnover rents, so whatever your query, we can help.

Bright commercial property lawyers

Our bright lawyers offer straight-forward advice in plain English. We offer a free initial chat to all new clients, so if you are a landlord or tenant considering a turnover lease, don’t hesitate to pick up the phone or contact us here.