Turnover rents have been with us for decades, possibly centuries. However, they have received increased attention recently as retail landlords and tenants look to them to resolve the challenge of fixing rents at a time of market uncertainty. The increased use comes at a time when changes in shopping habits create some challenges in adapting the traditional turnover rent template wording. The underlying difficulty is often that retailers can use shops for business activities that generate revenue, but where the revenue does not pass through the shop till so that identifying and auditing that revenue is not straightforward.
One such challenge concerns how to deal with click and collect sales. Click and collect is not a new issue, but the fallout from Covid may force parties to look at this harder as online sales make up a greater proportion of all sales. The fundamental issue is that the retailer will say that click and collect is not a sale that is really attributable to the shop. It is an online sale and the shop merely acts as a delivery point. But many landlords will see it differently, saying that the sale may not have taken place at all were it not for the convenient collection point, so it is reasonable to count this sale. To add to the difficulty often retailers will argue that it is impossible to accurately log click and collect turnover. It doesn’t go through the shop tills and it isn’t reasonable to expect staff to manually record it.
Another issue, but one affecting fewer retailers, concerns accounting for “product placement“ revenue. Typically larger retailers will have national contracts with brands whereby the brand pays an annual fee for certain of its products to receive prominent positioning in the retail stores, such as snacks or drinks close to till queues. Often these payments won’t be apportioned at a store by store level so once more the retailer will argue that the turnover should be ignored. But the landlord may counter that the prominence and footfall of the shop adds to the fee being paid so it is fair to take some accounts of this in the turnover rent.
The City of London law society has recently produced some guidance for lawyers on these types of issues. The guidance does not attempt to provide specific answers or template documents to cover all issues, but highlights and provides discussion around them.
It is vital for both landlords and tenants to be well-advised when dealing with these issues. At gunnercooke, we have a team of retail lawyers who are highly experienced in this area. Please get in touch with Matthew Cox if you would like to discuss any of the points raised.