Turnover-based rent
Turnover-based rent is a lease where all or part of the rent is calculated as a share of the tenant's revenue, instead of a fixed amount. The model is most common in shopping centres and retail property, where the landlord shares in the shop's success: if the tenant does well, the rent rises, and if the tenant does badly, it falls. That ties the interests of the landlord and the tenant together in a way ordinary fixed rent does not.
In practice, a minimum rent is usually combined with a turnover supplement. The tenant pays an agreed base rent in any case, plus a percentage of revenue above a certain level (the threshold). The percentage varies by sector: low-margin businesses such as groceries sit at the low end, while food service and specialist retail sit higher. The lease sets out carefully what counts towards the revenue base, how it is reported and the landlord's right to inspection and audit, because the rent depends directly on figures the tenant reports itself. This is what separates turnover rent from plain commercial rent with CPI adjustment, where the rent is adjusted in line with the consumer price index regardless of how the business is performing.
For the landlord, the model gives upside in good times and a buffer against empty premises in bad ones, because a tenant under pressure pays lower rent instead of going bankrupt or moving out. At the same time it makes the rental income more variable and therefore harder to value: a cash flow that moves with retail trade attracts a higher yield requirement than a fixed, predictable rent. A strong anchor tenant on turnover rent can still lift the value of a whole centre by drawing customers to the other shops.
Turnover-based rent is closely tied to how a shopping centre is managed. The landlord has an incentive to optimise the tenant mix, the marketing and the opening hours, because anything that raises revenue raises the rental income. The model is also used to a limited extent for restaurants and hotels, where revenue and profitability vary a great deal between seasons.
From Placepoint's dictionary: Turnover-based rent
More information: Eiendom Norge: Market reports, Store norske leksikon: husleie
English: Turnover rent (percentage rent).
Frequently asked questions
What is turnover-based rent?
It is a lease where the rent is calculated wholly or partly as a percentage of the tenant's revenue, instead of a fixed amount. The model is most common in shopping centres and retail property, and it links the landlord's income to how the shop actually performs.
How are minimum rent and turnover rent combined?
As a rule, the tenant pays a fixed minimum rent in any case, plus a turnover supplement of a set percentage of revenue above an agreed threshold. The percentage varies with the margins in the sector.
What is the difference from ordinary CPI-adjusted rent?
With CPI adjustment, a fixed rent is adjusted in line with the consumer price index, regardless of the business. Turnover rent follows the tenant's actual sales, so the rent falls in bad times and rises in good ones.
How does turnover rent affect the valuation?
It makes the rental income more variable, which on its own gives a higher yield requirement. At the same time it reduces the risk of empty premises, and a strong anchor tenant can lift revenue across the whole centre.