Turnover leases have always comprised a small section of retail and leisure leases. Previously, however, they have generally been combined with an element of a base rent; a traditional 10-year lease, say, with a five-year break clause. These leases were very much geared in the landlord\u2019s favour, guaranteeing a rental payment even if a store was closed, for example.<\/p>\n
The growth of online sales has been gradually disrupting this model, while raising questions about how to create a revenue-based lease in today\u2019s retail environment.<\/p>\n
\u201cWhat is revenue?\u201d Samuel asked. \u201cHow can online sales be captured where they are generated from a store? Some landlords and retailers are including sales from a postcode area to capture income derived from a store, while others are looking at charging on a footfall basis.\u201d<\/p>\n
The move to a revenue only lease involves a significant change in a landlord\u2019s mindset, Samuel said. They need to move away from assessing a potential tenant\u2019s covenant to assessing the actual business and whether it\u2019s likely to hit revenue targets, however they are measured.<\/p>\n
\u201cHistorically landlords have collected rent each quarter and haven\u2019t had a deep relationship with their tenants,\u201d DLA Piper partner Lorraine Reader said. \u201cNow a landlord needs to view the relationship like a partnership and almost invest in the tenant\u2019s business to make sure that each gets a share of the upside. They don\u2019t have a lot of choice; it is difficult to pick up a newspaper in the current climate without seeing a story of a retailer in distress.\u201d<\/p>\n