{"id":185495,"date":"2023-12-20T00:59:37","date_gmt":"2023-12-20T00:59:37","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=185495"},"modified":"2024-01-21T09:09:02","modified_gmt":"2024-01-21T09:09:02","slug":"models-turnover-leases","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/commercial-lease-property\/models-turnover-leases\/","title":{"rendered":"What Are the Models for Turnover Leases?"},"content":{"rendered":"\n

A commercial lease is when a business owner has sole occupation of a commercial property or part of it to run their business. In return, they pay rent to the landlord. Typically, a standard lease will state an agreed rental amount and when the tenant must make regular payments. However, if you have a turnover lease, the rent structure differs from a standard commercial lease. This article will explain the typical models for turnover leases.\u00a0<\/p>\n\n\n

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Cheatsheet for UK Leasing Terms<\/div>\n
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This cheatsheet includes practical tips to understand key clauses and avoid disputes in leasing agreements.<\/p>\n <\/div>\n \n\nDownload Now<\/a> <\/section>\n <\/div>\n\n\n\n\n

What is a Turnover Lease?<\/h2>\n\n\n\n

A turnover lease<\/a> is a commercial lease with a different rent structure than the average commercial lease. It is more common among retail and restaurant businesses. The rental amount in a turnover lease is either wholly or partly based on the turnover of the tenant\u2019s business. It is also known as turnover-based rent,<\/p>\n\n\n\n

Under this model, parties would calculate rent as a percentage of the tenant\u2019s turnover. However, the business\u2019 profit does not determine the rent, so you do not need to deduct for overheads. The turnover percentage tends to be from 1% to 15% of the business turnover. The average is around 7%. Therefore, where you have a turnover lease, it will usually affect the relationship between the landlord and the business owner. The landlord will likely be involved in the commercial lease, as it is in their interest for the tenant\u2019s business to progress well.\u00a0<\/p>\n\n\n\n

Whilst turnover leases differ, there are two standard main models. We explore these below.\u00a0<\/p>\n\n\n\n

1. Turnover-Only Model<\/h2>\n\n\n\n

One typical model for a turnover lease is where only the tenant’s business turnover will determine the rent. There is, therefore, just one single rent for the commercial premises. Below are two typical models this may take.\u00a0<\/p>\n\n\n\n

Model One  <\/h3>\n\n\n\n

In this model, the commercial tenant must always pay a minimum amount of rent, which is a commitment to a minimum turnover level. Accordingly, where their turnover falls below this level, they will still have to pay rent at the agreed amount.<\/p>\n\n\n\n

Where a commercial lease details this type of turnover lease model, the lease agreement will usually also contain a maximum turnover. This figure represents the maximum amount of rent the tenant will pay. Therefore, where their business does exceptionally well and even exceeds the maximum turnover level, their rent amount will not rise.<\/p>\n\n\n\n

Model Two<\/h3>\n\n\n\n

The typical alternative turnover-only model for a turnover lease is where the commercial tenant and landlord agree on an annual base rent. You may hear people refer to this as \u2018annual uplifts.\u2019 In this scenario, the rent amount rises yearly depending on the tenant\u2019s turnover. Therefore, you would calculate this amount by the turnover increase in the previous accounting period.\u00a0\u00a0<\/p>\n\n\n\n\n\n Continue reading this article below the form\n <\/i>\n<\/a>\n

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