As a retail tenant, you pay a set amount of base rent every year under your retail lease. However, you may also be required 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.
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.
The definition of turnover varies across Australia. In the Australian Capital Territory, Northern Territory, New South Wales and South Australia, turnover refers to “gross takings, gross receipts and gross income” of the business.
However, in Queensland and Tasmania, turnover is defined as “gross sales” generated from the business or premises.
Retail leasing laws can exclude certain payments and charges from being counted as part of a tenant’s business turnover. These exclusions commonly include:
- goods and services tax (GST);
- delivery fees;
- goods exchanged between stores;
- returns to manufacturers; and
- sales of tenant fixtures and fittings.
In NSW, most online transactions are excluded.
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?
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 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- or over-payment of turnover rent.
However, you can only make one request in the first year of the lease. After that, you have to wait at least another year to make another request.
Do You Have to Provide a Turnover Statement?
In most states and territories, a tenant does not have to provide a turnover statement if turnover rent is not payable to the landlord.
SA can fine a landlord $1,000 for requiring a tenant to provide any information about their turnover unless the lease requires payment of turnover rent.
However, in NSW, the NT and Victoria, a tenant can still be required to provide turnover statements without paying turnover rent. The tenant should include that information in their disclosure statement before entering into a lease agreement.
Is 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 the 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;
- to comply with any laws; or
- to the landlord’s professional advisers, mortgagee or prospective purchaser.
In Victoria and the NT, a landlord can receive a fine if they fail to keep the information confidential. In QLD, the landlord may have to pay compensation.
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 achieved a required turnover or sales targets.
However, landlords in QLD and WA could legally include a clause that allows for early termination because of poor turnover performance.
If you are required to pay turnover rent in those states, make sure there is no early termination clause in your lease agreement before signing.
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.
Many retail tenants pay turnover rent in addition to their base rent, unless they have negotiated otherwise. Ensure you know your obligations and rights regarding turnover rent, such as how and when to provide regular turnover statements. If you have any questions, get in touch with LegalVision’s leasing lawyers on 1300 544 755 or fill out the form on this page.
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