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Turnover Rent in Commercial Leases

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Turnover Rent in Commercial Leases

Turnover Rent is exactly as it sounds; a rent where the tenant pays a percentage of their turnover rather than a fixed sum. There are ‘hybrids’ where part of a rent can be fixed and the rest turnover, but the idea is that the landlord and tenant share the risk. Turnover Rent is attractive to tenants when trade is difficult and accepted by landlords when they see it as the only alternative to an empty property.

There has been lots of speculation that turnover rent (in some form) will become much more common-place but, so far, there doesn’t appear to be much evidence to support this assertion.  Where we have seen it, it has invariably been in the retail market.   

Of course parties can negotiate a turnover rent, but if they are unable to agree, can the Court impose one at lease renewal? 

This question was considered by the Court in the case (W (No 3) GP (Nominee A) Ltd and another v JD Sports Fashion Ltd [2021]).  The matter related to a retail unit in a shopping centre in Derby where the landlord was after a Turnover Rent, the tenant a fixed one and the Court had the power to determine the open market rent for a property under Section 34 of the Landlord and Tenant Act 1954.  In basic terms, an assessment such as this is based on what rent the property can be expected to be let for on the open market to a hypothetical willing tenant.  Essentially, the Court had to considered whether the open market would accommodate a part-turnover rent.  

After considering the facts, the Court decided it could not, but did not go as far as to say this would never be possible.  They reached their decision on the basis that they didn’t know what a hypothetical tenant’s turnover would be.  They indicated, however, that Turnover Rent may be appropriate in situations involving businesses where there was precedent (and therefore hypothetical turnovers could be established) and used the model of car parking leases as an example.

This decision, whilst only at County Court level, suggests that in most instances the Court won’t award a Turnover Rent.  It doesn’t stop parties from seeking to negotiate a Turnover Rent, but if agreement can’t be reached, the Court cannot be relied on to impose it.

For help with your lease renewals, please contact Louise James at l.james@duttongregory.co.uk or Denise Bull at d.bull@duttongregory.co.uk