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NEWS & INSIGHTS

Our lawyers are experts in their fields. Through commentary and analysis, we give you insight into the pressures impacting business today.

| 1 minute read

Tide turning on turnover rent leases?

How do you judge a market rent when the market is unprecedented? Turnover rents have been touted as a great solution - the tenant pays rent based on its trade. What the landlord sacrifices in certainty of income, it might gain in certainty of lease. At least some rent is coming in, at least someone else pays the business rates.

So it was interesting to read in Poundland's annual report that they would rather just pay a fixed rent, thanks. We've got clients who, like Poundland, prefer this to turnover rents.  There is considerable information sharing required in a turnover lease.  Some clients feel this is more administration than they can bear; others just don't trust the landlord to keep that confidential, or worry that a large landlord will use the tenant's own turnover against it on another site.

Turnover rents don't help landlords monetise internet sales either. That's not relevant to Poundland, but is an increasingly important part of many businesses nowadays. Aficionados of retailers' annual reports will have noticed how the John Lewis Partnership has revalued its physical store portfolio and attributed increasing percentages of value to its online offering. Of course some might ask why landlords should be entitled to monetise internet sales at all, but that's a discussion for another article.

The elephant in the room, though, is the level of actual rent.  Poundland told The Grocer last year that rents were just too high. Their report shows a saving of 36% of costs - and that's without a company Voluntary Arrangement.  My guess is that Poundland have achieved this though a combination of understanding the strength of their market position, and smart use of their Landlord and Tenant Act 1954 rights. The growth of internet sales seemed inexorable even before the pandemic, yet stores kept opening and rents kept rising.  Perhaps the real value of turnover rents is to help landlords and their valuers come to terms with how low the market rent really is.

Poundland favouring traditional fixed-rent leases but on more flexible terms

Tags

retail, landl, tenants