Retail Leasing Must Turnover

Corporate Finance & Restructuring | Australian Property Journal (Reprint)

October 20, 2017

lease

Retail leasing is fraught with conflict. On one hand, landlords desire certainty of income and to maximise the value of their investment. On the other, tenants commonly want to minimise their overheads and ensure their rent reflects the performance of the store.

A compromise of sorts has seen various forms of turnover rent clauses negotiated into a range of retail leases over the years (in particular for supermarkets, department stores, and larger specialty store networks in shopping centres), whereby the tenant would generally pay a fixed base rent, plus a variable ‘turnover’ rent component directly linked to annual revenue performance.

Traditional turnover rent clauses worked effectively when we all shopped conventionally in-store. There was no disputing a retailer’s turnover and little debate about the definition of the term ‘turnover’.

However, in an era where we are increasingly shopping online, are turnover clauses still relevant, at least in their previously accepted forms for some retailers? Many retail landlords will not yet have had the opportunity to address the impact of online sales (particularly for longer term leases) and how they are impacting store revenue and therefore turnover rent payable.

Posted with permission from Australian Property Journal © 2017. All rights reserved.

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