COVID-19: Impacts on Turnover Rent and ‘Keep Open’ Clauses

Published
4 minutes reading time

What is turnover rent

It is common practice for the landlords of large shopping centres, airports and railway stations around the country to include an obligation on their tenants to pay what is known as a turnover rent. Turnover rents, sometimes referred to as a percentage rents, allow for the rent to be calculated, wholly or partly, as a percentage of the amount of net turnover from sales generated by the tenant occupying the premises.

In some cases, the landlord will charge a basic rent and an additional fixed percentage of the tenant’s net turnover.

These provisions allow a landlord to monitor a tenant’s performance and to take the financial benefit of promotional activities carried out at the centre that increases customer footfall and hence the tenant’s sales.

Sitting alongside the turnover rent provisions in the lease and in order to enhance the amount of the turnover sales, the tenant is usually required to observe covenants requiring them to keep the premises open for trade during the centre’s usual opening hours. This ensures that the landlord’s turnover rent is maximised. If the tenant does close for any reason some turnover lease provisions entitle the landlord to charge a penalty or impose a notional turnover figure.

How might the COVID-19 outbreak impact Turnover Rent

In the wake of the COVID-19 outbreak, many businesses have been forced to close due to legislation, whereas other businesses have chosen to close.

Landlords who have shut the doors to their premises such as shopping centres will not be able to seek to enforce the keep open clauses in their tenant’s lease.

Where landlords have not shut their doors and their tenants have chosen to close their premises of their own volition, may find that notwithstanding the health and safety reasons which may have motivated the closure they may still be liable to their landlord for penalties arising under the terms of the lease or notional turnover rent that may accrue.

If a tenant is unable to access their premises due to a wider closure, such as in the example above of a retail unit in a large shopping centre which has closed, the tenant should approach their landlord to check how this will impact any keep open clause within a turnover rent provision. If it is agreed that the keep open clause will not apply and the turnover rent for the period of closure should be nullified or adjusted temporarily, it is recommendable that the parties take legal advice in relation to the recording of that concession.

In our blogs throughout this COVID-19 series, we have recommended that during this time of uncertainty landlords and tenants take a collaborative approach towards issues that arise and foster a sense of partnership as far as reasonably possible.

Further information

Should you require any further information regarding how COVID-19 might impact the provisions in your lease you can contact a member of our dedicated Real Estate team on 01619414000 or at lawyers@myerson.co.uk

We also recommend paying close attention to any new government guidance at www.gov.uk and following our COVID-19 blog series.