What is a turnover rent?
Most commercial leases require a tenant to pay a fixed sum each year — a base rent. However, some leases, particularly those entered into by retailers in large shopping centres, also include what is called a "turnover rent". This is an additional payment, calculated as a percentage of the retailer's sales from the store, that is triggered once sales exceed a certain threshold.
Facts
The claimants are Hammerson and Standard Life Investments (now known as ABRDN Investment Management) — the current and former owners of the Brent Cross Shopping Centre in London. The defendant is the John Lewis Partnership.
The 1979 Brent Cross lease contains broadly drafted turnover rent provisions, the language of which was originally intended to capture mail-order and telephone sales conducted through the store. The question is whether that language is wide enough to also catch click-and-collect sales - the facility that allows customers to buy goods online and collect them from a physical store.
The landlords argue that click-and-collect revenue should count towards turnover under the 1979 lease, because the store acts as the fulfilment point and the transaction is received or filled at or from the premises in substance, even if initiated online.
John Lewis’ position is that the sale is completed at the point goods are dispatched from its central distribution network, not at the store, and that the store merely serves as a collection point.
What the courts must decide
The task of a court interpreting a contract is to ascertain the objective meaning of the language which the parties have chosen to express their agreement, and this is not a literalist exercise focused solely on a parsing of the wording of the particular clause; the court must consider the contract as a whole and, depending on the nature, formality and quality of drafting of the contract, give more or less weight to elements of the wider context in reaching its view as to that objective meaning. The 1979 lease was a professionally drafted commercial agreement but it was drafted at a time when e-commerce was not merely impractical but entirely unimaginable. The court will have to decide what the parties objectively intended the language to mean and how that language should be applied to circumstances that were unforeseen.
This is not the first time English courts have had to grapple with turnover rent clauses in a world that has moved on since the lease was signed. In Debenhams Retail Plc v Sun Alliance and London Assurance Co Ltd, a 1971 lease contained a turnover rent provision that pre-dated the introduction of VAT in 1973. The Court of Appeal had to decide whether VAT receipts should be included in the turnover figure. The court concluded that the parties' failure to anticipate the introduction of VAT did not mean the lease could not apply; instead, the court had to promote the purposes and values expressed or implicit in the wording, and reach an interpretation which applies the wording to the changed circumstances in the manner most consistent with them.
The Hammerson v John Lewis dispute raises a very similar challenge: how should language from 1979, designed to capture non-store trading activity such as telephone and mail-order sales, be applied to a digital retail model that did not exist at that time?
What could the outcome mean in practice?
The commercial significance of such a ruling would vary by sector. Some retailers, particularly those in the food and beverage industry whose sales are by their nature fulfilled entirely from store stock, already accept the inclusion of click-and-collect revenue in turnover rent calculations. Others, notably fashion retailers, routinely negotiate express exclusions for click-and-collect sales. They tend not to attribute click-and-collect sales to the store from which the goods are collected for the purposes of their internal financial reporting and so, for such retailers, a ruling requiring such sales to be included in turnover under older leases could impose a significant administrative burden in reconfiguring reporting systems.
If the court rules in favour of the landlords
Should the court find that click-and-collect revenue falls within the scope of the turnover rent clause, the immediate consequence for John Lewis would be financial: it could face claims for additional rent for a number of years.
Many shopping centres and retail parks operate under leases that contain similarly broad turnover definitions, drafted in an era when the only way to shop was in-store. A decision in favour of Hammerson would invite landlords to review their lease portfolios and consider whether click-and-collect, reserve-and-collect, and other hybrid sales models might fall within existing rent provisions. That said, there is no single standard form of turnover rent clause and each case would depend on its own lease wording.
If the court rules in favour of the retailer
A decision in favour of John Lewis would not simply close the door on this type of argument for good. The dispute would have demonstrated that such claims can be made and are at least arguable, meaning that other landlords may still seek to test the point where their lease contains different or arguably stronger wording. It would also leave open a broader uncertainty: in many existing leases, the boundary between "in-store" and "online" revenue is simply not addressed, because the parties never needed to address it.
Why this matters beyond the high street
The implications of this case are not confined to retail landlords and their tenants. The underlying legal question — how should old contractual obligations respond to new commercial realities — arises across many sectors such as logistics, hospitality, media licensing, franchising, or professional services.
For anyone holding a portfolio of commercial properties let on long-term leases, this case serves as a timely reminder that contractual exposure may exist in places that are not immediately obvious, and that older leases deserve careful review in light of current business practices.
The judgment, when it comes, will be an important reference point for landlords, tenants and their advisers alike. Depending on the outcome, it may prompt an immediate wave of claims, a round of lease renegotiations, or simply a heightened awareness of where the risks lie in existing portfolios.
If you would like to discuss the potential impact of this case in more detail or consider cost efficient ways to ascertain whether any lease in your portfolio would likely be impacted, please contact Rachel Lawler.
Many thanks to Andrea Planchant for contributing to this article.
