As a retail tenant, you pay a set amount of base rent every year under your retail lease. However, your lease may also require you to pay turnover rent in addition to base rent. This article explains how turnover rent works and your rights and obligations as a retail tenant when your lease requires you to pay it.
What Is Turnover Rent?
Turnover rent (also known as ‘percentage rent’) is the percentage of business turnover that a tenant pays to the landlord on top of their base rent. This rent is an amount that tenants pay on top of the base rent. Once your store/business sales reach the turnover threshold agreed upon in your lease, then a fixed percentage will be applied to the revenue.
The definition of turnover sales will differ in each state and territory, so depending on the location of your premises, what is considered ‘turnover’ will vary. Additionally, the retail leasing laws in your state or territory can exclude landlords from counting certain payments and charges as part of a tenant’s business turnover. Therefore, it is important to determine how this will be calculated in your state or territory.
A very contentious area in turnover rent leases is whether purchases made online by a customer should be included as part of the rent. Some states provide exceptions to this rule, such as when the shop delivers or provides goods. Or for example, if the transaction takes place while the customer is in the shop.
Your retail lease will include a formula that calculates how much turnover rent you will have to pay. In most cases, you would only pay turnover rent if the turnover of your business exceeds a certain monetary threshold (such as the base rent) in a year.
What is a Turnover Statement and Do You Need to Provide One?
In most states and territories, a tenant does not have to provide a turnover statement if turnover rent is not payable to the landlord. In Victoria and Western Australia (WA), a turnover statement is required where turnover rent is payable. If you are in Victoria or WA and you have to pay turnover rent, you must provide a turnover statement within 14 days after the end of each month. You must also provide a turnover statement within 28 days in Victoria or within 42 days in WA at the end of each lease year, unless the lease provides for a longer period.
In other states and territories, you pay turnover rent based on the projected or presumed turnover of the business. Your actual turnover may often be different from the projected or presumed turnover. Therefore, you can ask your landlord to adjust for any under-payment or over-payment of turnover rent.
Continue reading this article below the formIs Your Turnover Information Confidential?
A landlord must keep your turnover information confidential. There are limited circumstances (which vary from state to state) in which the landlord can disclose information. The most common circumstances include disclosure:
- when the tenant consents;
- as part of aggregate sales figures for the retail area which does not disclose the turnover of a particular tenant;
- to a court or tribunal;
- in order to comply with any laws; or
- to the landlord’s professional advisers, mortgagee or prospective purchaser.
Can a Landlord Terminate Your Lease if You Fail to Meet a Turnover Target?
Most states and territories do not allow landlords to terminate a lease early because the tenant failed to achieve the required turnover or sales targets. However, in Queensland and WA, there are no provisions in the relevant retail leasing acts that prevent a landlord from doing so. As such, landlords in Queensland and WA could legally include a clause that allows for early termination because of poor turnover performance.
Why Should You Pay Turnover Rent?
Getting your accountant to prepare a monthly or annual turnover statement may feel like an administrative burden on your business. However, you can benefit from paying a lower base rent plus turnover rent for two main reasons:
- you can pay less rent if your business is not doing well, therefore reducing the risk of insolvency; and
- your landlord may take steps to attract more visitors to your store so that you can receive more turnover and they can receive more turnover rent.
This guide will help you to understand your options when you purchase a business with leased premises.
Key Takeaways
Many retail tenants pay turnover rent in addition to their base rent unless they have negotiated otherwise. You should ensure that you know your obligations and rights regarding turnover rent, such as how and when to provide regular turnover statements. If you have any questions, contact LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
Frequently Asked Questions
Turnover rent (also known as ‘percentage rent’) is the percentage of business turnover that a tenant pays to the landlord on top of their base rent.
Yes, landlord must keep your turnover information confidential. However, there are limited circumstances in which the landlord can disclose information.
Most states and territories do not allow landlords to terminate a lease early because the tenant failed to achieve the required turnover or sales targets. However, in Queensland and WA a landlord can legally include a clause that allows for early termination due to poor turnover performance.
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