Is turnover rent the new way forward?

Elizabeth Shaw Elizabeth Shaw 08 October 2020

High street retailer New Look announced it has won approval from its creditors via a Company Voluntary Arrangement (CVA) for 400 of its store rents to be linked to turnover. 

Under the CVA the remaining 68 stores will move to a zero rent. 

Liz Shaw, director at Wake Smith Solicitors, looks at the change.

“New Look’s success may well encourage other retailers to try to follow with a similar approach. 

“This agreement means that its landlords will have to accept a percentage of a shop’s revenue for their rent instead of relying on a fixed lease.  New Look argued that the new model reflected the wider retail market.”

New Look’s decision has been criticised by the British Property Federation who said “CVAs were designed to be short term as part of a wider rescue package to support businesses in genuine distress. 

Liz added: “But the result for New Look clearly demonstrates how the process is now wrongly being used as a weapon by businesses to rip up leases permanently.

“The challenging period for landlords continues; even where tenants businesses survive the current crisis, it is likely that there will be far tougher negotiations over the terms of new leases. 

“There is also conflicting case law under the Landlord and Tenant Act 1954 as to whether the courts have jurisdiction to order a turnover rent. 

“More important, market evidence is likely to be important in such cases, and so landlords who have agreed turnover rent arrangements with their tenants, even if intended to be temporary, need to bear in mind that this may impact the future for different rent arrangements for a much longer term.”

For further advice on property legal matters contact Elizabeth Shaw at [email protected]

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