One of the issues to be resolved when negotiating the terms of a turnover lease is what happens on assignment. 


The problem for L is that the turnover rent percentage will be set at the grant of the lease by reference to the initial T’s business. Any assignee may trade differently (and may even have a completely different business). This is something that needs to be considered at the Heads of Terms stage. Suggestions include: 


prevent assignment altogether: this might be appropriate on a short-term letting. In any event there will be problems with this in the classic model of turnover rent (eg rent is 75% or 80% of open market rent, plus a percentage of T’s turnover) lease, because of the effect on open market rent reviews which are a term of those types of turnover lease; 


give L a right of pre-emption: this is a common response, with L having an ‘offer back’ clause in the turnover rent lease. The consideration will be an amount equal to that offered on the open market by a prospective assignee, and it will usually be a pre-condition of any assignment. But there can be difficulties, especially if the lease has LTA 1954 protection. From T’s point of view, such an arrangement does give flexibility to assign or surrender at market price, but the disadvantage is that there will have to be a negotiation agreement on open market prices before being able to offer back to L; 


on assignment the rent will revert to an open market rent: this will normally be achieved by requiring there to be an open market rent review on the date of assignment. In the classic model, it is usual for the rent to revert temporarily (eg for a year) to the full market rent (eg if the principal rent is 80% of the market rent, the principal rent increases by 25%). At the end of that suspense period, the assignee’s turnover for that period will be settled and a new turnover percentage will be based on the existing pre-agreed formula. In practice L and the assignee will often agree from the start the appropriate turnover percentage. 


All these alternatives have their pros and cons. The main concern, however, will be to address these issues at an early stage. [2010] 259 PLJ 18.