The definition of turnover in the lease, not the store's trading, decides whether the landlord shares in sales that are paid for online and handed over in the shop.
Online sales affect turnover rent through the lease's definition of turnover, not through the store's trading. On an illustrative store with a 160,000 base rent and an 8 per cent turnover rent, a clause that counts click-and-collect and ignores online returns gives turnover of 2,300,000 and a 24,000 top-up in year one; the older wording gives 1,880,000 and no top-up at all, for the next five years.
Worked in full in Retail Real Estate by Julian R. Sterling, with every figure reproduced in a free workbook.See the book on Amazon →
Turnover rent was written for a shop where every sale was rung up at the till. A store now hands over goods paid for online, takes back goods bought online, and drives online sales it never sees. Each of those flows is either in turnover or out of it, and the difference is now large enough to move the rent.
| Input | Value |
|---|---|
| Base rent | 160,000 |
| Turnover rent rate | 8% |
| Sales rung up in the store, ex VAT | 2,000,000 |
| Click-and-collect: paid online, collected in the store | 300,000 |
| Online purchases returned in the store | 120,000 |
| Growth a year: in-store / click-and-collect / returns | -4% / 15% / 10% |
Two definitions of turnover are compared. The old clause counts sales transacted at the premises and deducts all refunds made there. The omnichannel clause counts sales fulfilled at the premises, including click-and-collect, and deducts only refunds of sales it counted. All figures are illustrative.
The natural breakpoint, the turnover at which the percentage rent equals the base, is 160,000 / 8% = 2,000,000.
Old clause: 2,000,000 − 120,000 = 1,880,000; 8% = 150,400, below the base, so no top-up
Omnichannel clause: 2,000,000 + 300,000 = 2,300,000; 8% = 184,000, a top-up of 24,000
Excel: =MAX(0,Rate*Turnover-Base)
The two definitions are 420,000 of turnover apart, worth 33,600 of percentage rent. On the old wording the store sits 120,000 below its breakpoint; on the new one it sits 300,000 above it.
The gap widens because the two flows the old clause mishandles are the two that grow.
| Year | In-store | Click-and-collect | Online returns | Old turnover | New turnover | Top-up, new |
|---|---|---|---|---|---|---|
| 1 | 2,000,000 | 300,000 | 120,000 | 1,880,000 | 2,300,000 | 24,000 |
| 2 | 1,920,000 | 345,000 | 132,000 | 1,788,000 | 2,265,000 | 21,200 |
| 3 | 1,843,200 | 396,750 | 145,200 | 1,698,000 | 2,239,950 | 19,196 |
| 4 | 1,769,472 | 456,262 | 159,720 | 1,609,752 | 2,225,734 | 18,059 |
| 5 | 1,698,693 | 524,702 | 175,692 | 1,523,001 | 2,223,395 | 17,872 |
| Total | 100,326 |
Under the old clause the store never pays a top-up: by year five its reported turnover is 1,523,001, only 68.5 per cent of the 2,223,395 it actually hands over to customers. Under the omnichannel clause it pays 100,326 of top-up over five years, an average of 20,065. Capitalised as a rough perpetuity at an illustrative 10 per cent, the higher yield that turnover income deserves, that is about 200,653 of value on one unit, and it sits entirely in a definition.
The landlord's test of whether a rent is sustainable is occupancy cost over sales, and the sales are the reported ones. With 60,000 of service charge and rates, the store's 220,000 of occupancy cost is 11.70 per cent of reported sales under the old clause and 9.57 per cent of the sales it fulfils. By year five the old-clause ratio is 14.45 per cent. A tenant will bring that figure to the rent review as evidence of over-renting, and on the old definition the evidence is manufactured by the clause. The method of the ratio is in how to calculate a retailer's occupancy cost ratio.
Not every online sale belongs to the store. A parcel delivered to a customer's home from a warehouse uses no part of the premises, and a clause that tried to capture a share of all online sales in the catchment would not be agreed by any retailer worth having. The defensible line is fulfilment: if the customer collects, returns or tries on at the store, the store is doing the work and the sale belongs in turnover. Store-influenced sales that are delivered elsewhere are better handled through the base rent than through the turnover clause.
Reading the turnover top-up as a measure of the store's trading. On the old clause the top-up is zero in every year and reported turnover falls 19 per cent, while the sales the store fulfils slip only from 2,300,000 to 2,223,395, and a valuer who reads the zero top-up history values the unit as if the store had declined. Read the definition, ask the tenant for click-and-collect volumes and return flows by channel, and restate turnover on a consistent basis before comparing years or units. The base mechanics are in how turnover rent is calculated.
Online returns deducted at the till are the costliest line here: they reduce reported turnover by 120,000 in year one for sales that were never counted.
The book treats the tenant's sales report as the asset's primary evidence, and the free workbook for this case builds occupancy cost and rent at risk from it, unit by unit.
Only if the lease says so. Older clauses count sales transacted at the premises, so an order paid online and collected in the store is excluded. On an illustrative store 300,000 of click-and-collect is worth 24,000 of rent at 8 per cent, and the difference between the two definitions, returns included, is 33,600 of percentage rent in the first year.
Not if the sale was never counted. Many clauses deduct all refunds made at the premises, so goods bought online and returned in the shop reduce reported turnover for sales that were never counted in it. On the illustrative store 120,000 of such returns pushes turnover to 1,880,000, below the 2,000,000 breakpoint, and they grow as online trade grows.
Because the store's costs stay while its reported sales shrink. On the old definition the store's 220,000 of occupancy cost is 11.70 per cent of reported sales in year one and 14.45 per cent in year five, against 9.57 per cent of the sales it actually hands over. A tenant will use the higher figure to argue for a lower rent.
This article is one calculation from Retail Real Estate. The book takes the same case from first principles to the decision, chapter by chapter, and every figure it prints is a live formula in the free companion workbooks.
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