Retail Dogma

Turnover Rent

What is Turnover Rent?

Turnover rent is a type of rental agreement, usually used in retail, where the rent amount is linked to the sales of the store location.

It is also referred to as “Percentage Rent”

How Does It Work?

There are 3 ways this is usually applied in retail:

  • Pure Turnover Rent: In this method the retailer pays a certain percentage of their total sales
  • Base Rent and Turnover Rent: In this method the retailer pays a fixed base amount that is below the market rate plus a percentage of total sales
  • Base Rent & Turnover Top-up: In this case the retailer pays a fixed base amount at the market rate, but if sales exceed a certain threshold, the retailer also pays a percentage of the amount above the threshold

Turnover Rent Calculation Example

For example, Store X has a rental agreement with Mall Y, based on which Store X pays a fixed monthly amount of $4000 and a 10% of the excess amount if sales exceed $50,000 at any given month.

In June, the store generated $70,000 in sales.

Based on the agreement, the store will pay $4000, in addition to 10% of the amount exceeding $50,000, which is in this case $20,000. So the total rent for that month will be:

$4000 + $2000 = $6,000

Data Sharing

Any rental agreement that includes turnover rent will require a certain level of data sharing between the tenant and the landlord. So tenants need to be prepared to do this additional task every month.

Also, some terms need to be clarified in advance as to what falls under retail store sales. Will this include online sales from the same retailer, or only the brick & mortar sales at the store location? What about BOPIS orders, will they be included or excluded from the reporting?

All this needs to be discussed and drafted into the agreement, to avoid any confusion or misunderstanding in the future.

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