Commercial lease with profit clause help needed
Discussion
My Son is moving up in the fast food field from a back street unit to a main stream unit with plenty of footfall, he's targeted a particular shop and the Landlord wants him to come up with a lease proposal that includes a profit clause over the next 7 days, I believe these are normal in fast food outlets in prominent positions but you can't just ask Burger King what they are paying, any clues on here?
There are leases that provide for performance related rent however in my experience they are not common. I have never seen one geared to profit, revenue or footfall are more measurable. This type of lease is often structured as a base rent plus the variable. Shopping centre kiosks, retail units in stations sometimes attract these sorts of leases, in high streets they are rare. As with any new lease it really comes down to what it is worth to landlord and tenant, either you agree heads that are acceptable to both parties or walk away.
There's no harm in ringing MCd's and trying to speak to their legal team - they might be prepared to show you (or talk through) generic clauses regarding your query (without them giving anything commercially sensitive away). You might not get anywhere but worth a shot.
try linking in with someone from Mcd's/BK/KFC/Cottage Chicken etc etc. You never know.
Alternatively - speak to a commercial agency that regularly lease fast food outlets - they'll no doubt have experience in this too.
Depending on where you are - I can make some suggestions as to whom to contact if you want.
try linking in with someone from Mcd's/BK/KFC/Cottage Chicken etc etc. You never know.
Alternatively - speak to a commercial agency that regularly lease fast food outlets - they'll no doubt have experience in this too.
Depending on where you are - I can make some suggestions as to whom to contact if you want.
Keep it stiff said:
There are leases that provide for performance related rent however in my experience they are not common. I have never seen one geared to profit, revenue or footfall are more measurable. This type of lease is often structured as a base rent plus the variable. Shopping centre kiosks, retail units in stations sometimes attract these sorts of leases, in high streets they are rare. As with any new lease it really comes down to what it is worth to landlord and tenant, either you agree heads that are acceptable to both parties or walk away.
Good advice, but worth adding that a profit based rent could be better for the tenant than a turnover rent, as the latter can involve extra rent in loss making circumstances.It's not something that is specific to most fast food outlets, rather its something that is more common in particular locations. These are nearly always covered areas under block ownership, I.e. Shopping centres, parts of larger retail schemes, stations etc.
It should be the same sort of lease for all retailers in these locations, be it those selling burgers, watches, shampoo or jeans.
Speak to a retail surveyor and get some thoughts on the wording for the Heads of Terms to make sure they are no more onerous than would be expected for the particular location your son is looking in.
It should be the same sort of lease for all retailers in these locations, be it those selling burgers, watches, shampoo or jeans.
Speak to a retail surveyor and get some thoughts on the wording for the Heads of Terms to make sure they are no more onerous than would be expected for the particular location your son is looking in.
It is a turnover clause you want not a profit clause, well actually thats not true. You or your son might want a profit clause as he can use many tricks to reduce the profit! However these usually work on turnover as it is easier to measure.
As Soxboy says often to be found in covered shopping centres although they tend to be a top up, so the rent is agreed at say 80% of full rental value and then a top-up based on turnover. The problem then becomes in determining what full market rental is as there is no evidence to arrive at it!
If I was the OPs son I would be looking to do some from of stepped deal so as the turnover increases the per centage that goes in rent also increases. My thought is that it will take time to build up the business and you want outgoings to be as low as possible at the start. Hopefully he has a forward thinking landlord who is effectively investing in him, by being prepared to accept a lower rent at the beginning, and a higher one in the future.
As Soxboy says often to be found in covered shopping centres although they tend to be a top up, so the rent is agreed at say 80% of full rental value and then a top-up based on turnover. The problem then becomes in determining what full market rental is as there is no evidence to arrive at it!
If I was the OPs son I would be looking to do some from of stepped deal so as the turnover increases the per centage that goes in rent also increases. My thought is that it will take time to build up the business and you want outgoings to be as low as possible at the start. Hopefully he has a forward thinking landlord who is effectively investing in him, by being prepared to accept a lower rent at the beginning, and a higher one in the future.
And we wonder why the high street is dying....
I've no experience of shop leases but I've heard about them (I've worked around retail for a few years)
From what I've understood turnover clause is usually added when the rent is below normal levels and on short term or rolling leases.
To me this just says " we cant be bothered to do any hard work but we are quite happy for you to and we'll have a share, thanks" Same with land development claw backs. Greed all the way.
I'm currently looking at premises for a small project based in the north-east. A small shopping centre north of Newcastle the rent per sqft is £143.00 + rates + service charge.
I've no experience of shop leases but I've heard about them (I've worked around retail for a few years)
From what I've understood turnover clause is usually added when the rent is below normal levels and on short term or rolling leases.
To me this just says " we cant be bothered to do any hard work but we are quite happy for you to and we'll have a share, thanks" Same with land development claw backs. Greed all the way.
I'm currently looking at premises for a small project based in the north-east. A small shopping centre north of Newcastle the rent per sqft is £143.00 + rates + service charge.
Well the landlord has invested in the property and bought it in the first place, tied up their capital etc so they haven't done anything.
What we don't know is if the landlord in this case is willing to take a risk by offering a low rent in the early years to effectively be repaid when turnover improves. or if they are just planning to benefit from the turnover increase.
What we don't know is if the landlord in this case is willing to take a risk by offering a low rent in the early years to effectively be repaid when turnover improves. or if they are just planning to benefit from the turnover increase.
Chrisgr31 said:
Well the landlord has invested in the property and bought it in the first place, tied up their capital etc so they haven't done anything.
What we don't know is if the landlord in this case is willing to take a risk by offering a low rent in the early years to effectively be repaid when turnover improves. or if they are just planning to benefit from the turnover increase.
I agree with that and only if a fair discount is offered. What we don't know is if the landlord in this case is willing to take a risk by offering a low rent in the early years to effectively be repaid when turnover improves. or if they are just planning to benefit from the turnover increase.
The landlord bought the place and rented it out that's his business model.
If he wants more income then he should invest more and open a shop himself/herself.
I'm looking at a few sites for a friend most have various clauses in the lease that sadly make it so costly that its just not worth looking any further.
528Sport said:
I'm looking at a few sites for a friend most have various clauses in the lease that sadly make it so costly that its just not worth looking any further.
Sticking my sixpenn'orth in
We tend to find turnover rent leases in major shopping centres. The idea is that the mall operator has the job of generating footfall and once the punters are in it is up to the shop owners to capitalise on that and sell them stuff. So both sides contribute to the success of the sales process.
Generally rent is described as being around 80% of market rent and the rest is made up by a share of turnover.
What tends to happen in practice is that the operate pushes the rents up so that the 80% figure is the real open market rent. Rent negotiations are based on comparable and the only effective ones in large malls are the other units so the operator controls both ends of the deal.
Generally they work because there is enough cash swilling around for everyone to have a reasonable piece of the action.
It is a lot more stressful in a difficult market.
As has been said, most commercial leases cover the same issues albeit in different wording. There are (more than) enough lawyers on here to have a quick look and scream if there is something truly bizarre.
We tend to find turnover rent leases in major shopping centres. The idea is that the mall operator has the job of generating footfall and once the punters are in it is up to the shop owners to capitalise on that and sell them stuff. So both sides contribute to the success of the sales process.
Generally rent is described as being around 80% of market rent and the rest is made up by a share of turnover.
What tends to happen in practice is that the operate pushes the rents up so that the 80% figure is the real open market rent. Rent negotiations are based on comparable and the only effective ones in large malls are the other units so the operator controls both ends of the deal.
Generally they work because there is enough cash swilling around for everyone to have a reasonable piece of the action.
It is a lot more stressful in a difficult market.
As has been said, most commercial leases cover the same issues albeit in different wording. There are (more than) enough lawyers on here to have a quick look and scream if there is something truly bizarre.
CrouchingWayne said:
Just a thought, but if agreeing a turnover or profit based increase will you need to budget for higher professional/audit fees to keep everyone happy?
In principe, yes. Some form of audit is necessary to prove the figures. On the larger centres the operator will often insist on access to EPOS data which is obviously a seriously contentious issue for the larger chains but they seem to be able to sort it out.Gassing Station | Business | Top of Page | What's New | My Stuff