Turnover rents are not a new concept. They have been used for some time in the retail and leisure sectors, particularly for shopping centres and outlet villages.
But as COVID-19 exerts ongoing financial pressure on businesses of all types, turnover rents have become something of a hot topic.
Rents are more commonly based on fixed leases, which may increase when reviewed, but rarely go down. However, turnover rents are based on a percentage of a business’s turnover.
This means that the amount paid can both go up and down, providing some relief to businesses when trading becomes tough, such as during the pandemic.
The system can benefit both landlord and tenant, provided the property owner is comfortable with having some uncertainty around their income stream.
COVID-19 has led many business owners to re-examine their leases and to hold discussions with landlords to reach agreements in order to cope with the implications of lockdowns and reduced turnover.
Commercial tenants are currently protected from eviction for non-payment of rent due to the government moratorium on the forfeiture of commercial leases, which has been extended to 31 December.
However, rent still accrues along with interest and, for landlords, non-payment means reduction in income in the short term.
For this reason, many property owners and occupiers have concluded that it is better to come to a mutual arrangement to vary lease terms to hopefully avoid businesses finding themselves in financial trouble and ensure that landlords continue to receive rental income.
The relationship between a property owner and his or her commercial tenant is a partnership and some are of the belief that turnover rent arrangements strengthen that partnership due to their mutually beneficial nature.
For the retail and leisure sectors where it is straightforward to calculate turnover; turnover rents could certainly be the best solution to the financial pressures created by COVID-19.
If you need advice about negotiating a commercial lease, whether you are a property owner or a commercial tenant, don’t hesitate to get in touch with our commercial property team. You can call 01782 205000 or email email@example.com