{"id":185505,"date":"2023-12-20T01:29:22","date_gmt":"2023-12-20T01:29:22","guid":{"rendered":"https:\/\/legalvision.co.uk\/?p=185505"},"modified":"2023-12-20T01:29:23","modified_gmt":"2023-12-20T01:29:23","slug":"pros-cons-turnover-leases","status":"publish","type":"post","link":"https:\/\/legalvision.co.uk\/commercial-lease-property\/pros-cons-turnover-leases\/","title":{"rendered":"Pros and Cons of Turnover Leases"},"content":{"rendered":"\n

A commercial lease is where a business owner occupies a property or part of it to run their business in exchange for rent. Typically, rent is an agreed amount and will not increase rapidly, except where a landlord conducts a rent review<\/a>. However, some commercial lease agreements are turnover leases. These detail a reduced base rent and a turnover rent in addition. Most of the time, a commercial landlord has no legal obligation to accept the proposal for a turnover lease and instead charge a higher rent as per a standard commercial lease. It is, therefore, helpful for both commercial landlords and tenants to consider how a turnover lease may or may not benefit them in deciding whether to enter a turnover lease. This article will explain the pros and cons of turnover leases. <\/p>\n\n\n\n

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

A turnover or turnover-based lease<\/a> is a commercial lease with a different rent structure from the average commercial lease. A tenant in a turnover lease usually pays a base rent that is less than the standard rent for their commercial lease. On top of that, they also pay a turnover rent or turnover-based rent.<\/p>\n\n\n\n

The turnover rent is a percentage of the commercial tenant\u2019s turnover. The landlord and the tenant will agree on the percentage before they enter the lease. This tends to range between 1-15%, and the average is 7%. The set percentage should only cover turnover over an agreed threshold. Therefore, where the tenants\u2019 business is successful, the turnover element of the rent increases and where it is suffering, it decreases. <\/p>\n\n\n\n

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Turnover leases are standard amongst commercial tenants with businesses in the retail or business sector.<\/p>\n<\/div>\n\n\n\n

A landlord may require approval from their mortgage provider before they can enter a turnover lease with a tenant.<\/p>\n\n\n\n

Pros of Turnover Leases<\/h2>\n\n\n\n

A primary advantage of turnover leases is that both parties will benefit when the tenant\u2019s business progresses. Naturally, the tenant will gain increased profits, and the landlord will receive more rent under the turnover lease. Accordingly, this kind of commercial lease can encourage both parties to remain motivated and ensure the business\u2019 success. A commercial lease agreement may even contain a provision that requires both parties to invest in the success of the tenant\u2019s business. <\/p>\n\n\n\n

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The turnover rent provisions in a lease must be clear to avoid disputes.<\/p>\n<\/div>\n\n\n\n

Additionally, commercial tenants benefit from turnover leases as the lower base rent is advantageous when their business is not doing well. Financial difficulties can arise when:<\/p>\n\n\n\n