Turnover rent is a method by which a business may pay rent to its landlord. It is typically calculated based on the tenants’ retail sales. The rent is determined as a percentage of turnover, where once sales reach the turnover threshold in a certain period, a fixed percentage is then applied to the revenue.
This payment is usually made in conjunction with the usual base rent. It allows the landlord to have greater security as if store profit increases, the tenant pays a higher amount in addition to the base rent.
The lease will usually include a formula that determines how much turnover you are required to pay. Retail leasing laws in your state and territory may exclude landlords from counting additional charges and payments as part of the turnover. Exclusions may include :
- Goods exchanged between stores
- Delivery fees
- Refunds and discounts
- Tenant fittings and fixtures sales
- Goods and services tax (GST)
Why should I pay turnover rents ?
The landlord is required to audit the report that the tenant must provide on their turnover. Although there is an administrative burden on both the tenant and the landlord, it remains useful, as it allows the rent to be adjusted to market conditions. This means that if your business is not doing well, it can reduce the risk of insolvency.
Can a lease be terminated if you do not meet your turnover target ?
In most states and territories, landlords are not permitted to end the lease if the target sales or turnover is not reached. However, this is not the case in Queensland and Western Australia. Rather, in these states the landlord may choose to add a clause in the lease that allows for termination if target turnovers are not reached.
Will my turnover information be kept confidential ?
The landlord is obliged to ensure that the turnover is kept confidential. In some states, such as the Northern Territory and Victoria, the landlord can receive a fine for failure to keep the information confidential. There are specific circumstances in each state that allow for disclosure. This includes when the tenant has consented, information to a court or tribunal, and to the landlord’s professional advisors if required.
Key Takeaways
Turnover rents are typically used in retail leases in addition to the base rent. Specific turnover statements vary in each state. You must ensure that you are aware of your rights and obligations as a retail tenant.
Phil is a director at OpenLegal. He has over 16 years experience working in private practice and in-house counsel in Sydney and London, giving him expertise in employment law, IP, finance, leases, dispute resolution, insurance and contracts.
Sarah is a penultimate year Law and Business student at UTS. She has a great interest in corporate and commercial law, and is involved in many international human rights projects.
