Guides & Advice

A New Look at turnover rents

Published: 21st September 2020
Area: Litigation & Dispute Resolution
On 15 September, New Look’s CVA proposal was given the green light by its creditors. Not a single store closure is set to take place, with the jobs of the retailer’s 11,000-plus staff safe for now.

Instead, the CVA involves 400 of New Look’s UK stores changing to a turnover-based rent model, the 68 remaining stores having a three-year rent holiday, and enhanced landlord break clauses.

A sign of the times

The approval of the CVA will have come as reassuring news for New Look, however, it further demonstrates the difficulties retailers are facing during the pandemic.

The lack of footfall is hurting the High Street and it is unlikely to get any easier with local lockdowns being put in place at short notice and further national restrictions now on the horizon.

What are turnover rents?

Turnover rents are usually used in leases in the retail sector. The payment is divided into a fixed term base rent, determined by market conditions, and a turnover element, determined by the tenant’s financial performance (the percentages of this division can be negotiated). Turnover rents allow both tenant and landlord to share in the good times and the bad.

Read more about turnover rents.

As a turnover-based rent model takes into account the uncertain nature of future trading, in this case it may give the retailer the flexibility it needs to survive. While it is designed to assist the retailer and will leave landlords with uncertain income, this is clearly better than insolvent tenants and empty buildings.

With a new wave of restrictions looking increasingly likely, this model has the potential to become the sector’s favoured route as the UK moves forward. Although, for such a model to succeed there will need to be close co-operation between retailers and landlords.

Maintaining trust

Retailers that successfully negotiate a turnover rent agreement are then required to keep detailed records of all items sold and must provide their landlord with regular ‘turnover certificates’.

If this isn’t done, the trust between landlord and tenant can be lost and a full audit may be undertaken. However, as long as retailers communicate honestly with landlords, with both parties given a level of security within the agreement, turnover-rents can be a helpful option in uncertain times.

Time will tell as to whether turnover rents will keep New Look trading in the long run, but for now, it has helped to save thousands of jobs, and stopped the country’s high streets from gaining another ghost.

Flexibility is necessary if the retail sector is to survive

To come out of the other side of this pandemic fighting, considerable change is needed. Are turnover rents the solution?

If you’re experiencing financial difficulties and would like some help and advice on how to protect your business, our corporate, restructuring and insolvency team can help – contact Tim Speed for guidance and support.

From inspirational SHMA Talks to informative webinars, we also have lots of educational and entertaining content for life and business. Visit SHMA® ON DEMAND.

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