Structuring Padel Leases for Growth: Five Key Considerations for Operators

For operators launching their first venue, a traditional fixed annual rent may not be appropriate due to restrained cash flow during the early stages of development and while customer numbers are growing.

In such circumstances, a turnover linked rent arrangement may provide greater flexibility.

Under a turnover linked rent model, part or all of the rent is linked to the revenue generated by the business.

This can assist where customer numbers and revenue are still developing as the operator is not burdened with a high fixed rental cost from day one.

The landlord instead shares in the commercial risk, which may be an attractive offering if they view the venture as one that will generate significant income, which will be tied to the rent they receive.

In practice, a landlord may be more inclined to accept a hybrid model, in which there is a fixed amount of base rent supplemented by additional turnover linked rent.

This provides the landlord with a minimum guaranteed amount of rent whilst allowing the tenant some protection during the early stages. 

More established operators, with a multi-site offering, may instead favour the fixed rent approach. This provides predictable outgoings and can be easier to assist with wider budgeting.

Whilst turnover rent can provide flexibility and reduce rental costs during early stages and slower periods, it can also introduce additional complexity due to the detailed provisions required regarding the calculation of rent and reporting obligations of the operator, potentially slowing down negotiations.

The model also places additional administrative burdens on operators and can lead to an increased potential for disputes. 

Ultimately, the appropriate rental structure will depend on the operator’s current business, available up-front funds for expenditure and growth strategy. 

The upfront expenditure associated with developing a padel venue can be substantial and significant investment is often required before any revenue is generated.

For this reason, operators should seek a lease term that provides sufficient security to allow the business to establish itself and build a customer base to recover the initial investment. 

We typically see lease terms of 15 years, with a term of this length allowing operators to build brand recognition and expand their offering if there is early success. 

Consideration should be given to whether the lease benefits from the security of tenure provisions granted under the Landlord and Tenant Act 1954.

The provisions grant tenants statutory rights to renew their tenancy at the end of the contractual term which, for a successful venue, offers the security of business continuity. 

If the landlord is reluctant to grant a lease which benefits from security of tenure, tenants could consider an option to renew for a further term as an alternative.  

It is important that the lease provides sufficient flexibility for future alterations as a business develops. The ability to add further courts or expand the other offerings of a venue can be critical for growth. 

Modern commercial leases typically distinguish between alterations that are prohibited, alterations that are permitted with landlord consent, and alterations that are permitted without landlord consent. 

Ideally, operators will want the lease to provide that minor, non-structural alterations can be made without the need for landlord’s consent.

Where landlord consent is required, tenants should ensure that such consent cannot be unreasonably withheld or delayed.

This reduces the risk of expansion plans being prevented or delayed by unreasonable landlord refusal.