In most cases, the base rent agreed in a turnover lease agreement ensures that the rent received by the lessor is not less than a certain minimum amount. If landlords depend on the turnover of certain businesses, anything that has an impact on turnover could reduce the amount of rent of turnover. However, most revenue leases do not try to cope with it. The definition of “gross turnover” normally includes orders requested by people who come to or operate from the premises, but how can you say that a sale made through a retailer`s individual website is linked to or originates from certain premises? The flexibility of these agreements makes them particularly popular with multifaceted companies like H&M Group, which operates several independent brands and stores: COS, Monki, Weekday & Other Stories and Arket. But what works for you doesn`t work for everyone; Large and small retailers need to be aware of their current position and carefully consider whether they are benefiting from the long-term revenue rent. For example, three or four units each with a revenue lease can quickly become more of a burden than an opportunity. To calculate a natural threshold, divide the base rent by the percentage agreed for the calculation of the turnover rent. For example, if the base rent is US$200,000 and the revenue rent is 10% of gross revenue, the natural threshold is determined by showering the base rent with the percentage corresponding to a natural threshold of $2 million. The higher the base rent, the higher the threshold. The income of other users of their unit is a particular problem that tenants must address. A number of standard leases with turnover allow for `double counting`, since the lessee, if allowed to share the use with dealers or franchisees, treats the turnover achieved by that other user as a turnover of the tenant for the purpose of calculating the rent of turnover. In addition, the rent paid by the tenant to the tenant is taken into account.
A turnover rent is calculated by referring to the turnover generated by the tenant. It goes without saying that if the landlord is to be able to calculate the rent of the turnover, he must have access to accurate information about the turnover, but the tenants do not always provide the information or do not provide it on time. Careful preparation of rental terms and early negotiations with the tenant can encourage tenants to produce the information and reduce the delay in receiving rent and possible legal costs. The turnover rent is not a fixed rent, it is based on a calculation. The rent is calculated from the turnover generated by the tenant`s activity operated from the rented property. Given that the effects of the pandemic are weighing on retail, fluidity is essential in the market. If trade is to survive the effects of Covid-19, radical changes are needed, from negotiations between landlords and tenants to the reintroduction of turnover rents on a larger scale. In the case of a turnover rent, the tenant usually pays the basic rent either weekly, monthly, or quarterly, in accordance with his agreement with the landlord. After each turnover period, the tenant then pays the basic rent, plus the additional percentage of turnover. As a rule, the calculation takes the aggregate of gross turnover for the relevant turnover period (usually each year depending on the tenant`s financial year) and then multiplies the figure by the agreed turnover rental percentage.
If you are considering entering into a revenue lease agreement, it is important to get detailed advice, as the conditions do not seem simple from the beginning. Please feel free to contact me if I can provide additional help.. . .