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Will The Trickle Of West End Turnover Leases Turn Into A Flood?

The Takato Dam

The point of no return for widespread use of turnover-based lease arrangements in London's West End is drawing ever closer.

Turnover-based leases are based on sales volume in stores, and typically involve the tenant paying the landlord a percentage of its revenue. These structures are often added on top of a base rent and often include a threshold where tenants don't pay turnover-based rent until they reach a certain sales income.

Capco has joined the Crown Estate in offering turnover-based leases to leisure and restaurant tenants as West End landlords confront post-pandemic reality.

Capital & Counties has restructured leases at Covent Garden to include a turnover element amidst widespread rent payment defaults. The landlord collected just 27% of the rent due on the June quarter day. This compares to 44% collection in March 2020 and 99% for the same period in 2019.

The business has also renegotiated its own borrowing as the loan-to-value ratio soared from 16% in late 2019 to 32% today, a Capco trading update said.

Covent Garden total property value was £2.2B at 30 June, representing a 17% like-for-like decrease since 31 December. The value includes a heavy bias toward food and beverage, which represents 75% of the property’s value although only 20% of the floorspace.

Capco is the second large West End landlord to dabble in turnover rents. The Crown Estate has written to tenants suggesting 9% of turnover, or a sliding scale of quarterly rent from nothing to 75%, the Sunday Times reports.

West End landlords are facing particularly acute pressures amid what local business group The New West End Company estimates will be a £5B loss in anticipated consumer spending.