Revenue-based rent

Revenue-based rent is a type of lease agreement in commercial lease law in which the rent is linked, in whole or in part, to the revenue generated by the tenant in the leased space. Typically, a minimum rent (base rent) is agreed upon, which must be paid in any case, plus a percentage of the revenue that exceeds the base rent once a certain threshold is reached. This model is particularly common in retail, shopping centers, the restaurant industry, and increasingly in the leisure real estate sector-landlords and tenants thus share both economic risk and economic opportunity.

Structure of the sales-based rent: Base rent and revenue share

A typical sales-based rent consists of two components:

Minimum Rent (Guaranteed Base Rent): A fixed amount that must be paid in any case, regardless of actual revenue. It guarantees the landlord a minimum return and covers ongoing financing costs. In shopping centers, the minimum rent is typically 70-80% of the market-standard fixed rent for comparable spaces.

Revenue Share (Revenue Scale): Once an agreed-upon revenue threshold is exceeded, the tenant pays an additional percentage of net revenue. The percentage varies significantly depending on the industry:

• Food retail: 1-3% of net revenue
• Apparel and fashion: 5-8%
• Food service: 8-12%
• Service providers (hairdressers, beauty salons): 10-15%

Calculation example: A retail space (100 m², downtown Nuremberg) pays a minimum rent of €3,000 per month. The threshold is €100,000 in net monthly revenue. With actual monthly revenue of €130,000, an additional 5% × €30,000 = €1,500 in revenue share applies-bringing the total rent to €4,500.

The lease agreement must precisely define the revenue criteria, the tenant’s obligations to provide proof (e.g., submission of the business analysis, cash report, or an audited revenue statement), and billing terms (monthly, quarterly, annually).

Advantages and Disadvantages for Landlords and Tenants

For the landlord:

• Participation in the tenant’s financial success during good years
• Fair distribution of burdens during economically weak market phases (minimum rent as a floor)
• Long-term retention of attractive tenants through a shared interest in high revenue
• Lower risk of rent loss during crises, as the base rent is secured even with low revenue

For the tenant:

• Lower fixed costs during periods of low sales-particularly important during the start-up phase of new locations
• Fair alignment of interests: The landlord has an incentive to keep the location attractive (walk-in customers, center opening hours, marketing)
• Greater willingness on the part of the landlord to negotiate for larger rental spaces

Disadvantages for the landlord: No reliable planning security; effort required for sales verification and billing; risk of sales manipulation by the tenant.

Disadvantages for the tenant: Obligation to disclose confidential operating data; frequent disputes over the definition of sales; online sales as a potential source of conflict.

Legal Requirements and Contract Drafting

Revenue-based lease agreements are subject to general commercial lease law (Sections 535 et seq. of the German Civil Code (BGB)). Since there are no special statutory provisions, the parties must negotiate the contractual terms in detail. Critical points:

• Definition of revenue: Gross revenue or net revenue? Including or excluding returns, discounts, tips, and online sales with in-store pickup (click & collect)?
• Landlord’s right of inspection: To what extent may the landlord review the revenue documents? May the landlord engage an auditor, and who bears the costs?
• Adjustment clauses: What happens if inflation causes the threshold to no longer reflect the market rent? Indexation clauses are particularly important in turnover-based lease agreements.
• Term and special termination rights: Turnover-based lease agreements often have long terms (10-15 years in shopping centers); special termination rights in the event of a sustained failure to meet the minimum rent protect the tenant.

We recommend having turnover-based lease agreements reviewed and negotiated exclusively by an attorney specializing in commercial lease law-errors in the definition of turnover can bind both parties for years and lead to significant financial losses.

Turnover Rent and Property Valuation

For the valuation of a property with sales-based lease agreements, the sustainable expected rental income is decisive-that is, the average rent expected based on sales history and market trends. For retail properties (shopping centers, retail parks), the creditworthiness and sales performance of the tenants are key valuation criteria.

Low sales and the resulting low sales-based rents depress the income value and thus the market value of the property. When valuing commercial properties with sales-based lease agreements, we always consider multiple scenarios (base case, stress case) and verify whether the agreed-upon minimum rent is in line with the market.

Practical Tip for Property Owners in Nuremberg and Franconia

In downtown Nuremberg and in the major shopping centers-such as the Franken-Center in Langwasser, the City-Point in the city center, or retail parks in the south and east of Nuremberg-turnover-based leases are common for retailers and have been an established standard for years.

Landlords of smaller retail spaces in outlying areas of Nuremberg and neighborhoods such as Gostenhof, Maxfeld, or the Südstadt are increasingly negotiating turnover-based rents to attract attractive tenants while also participating in the upside-especially when targeting restaurants or concept stores as tenants, which require a ramp-up period.

For larger commercial properties in the region, we recommend consulting a specialized commercial real estate broker and a lawyer specializing in commercial lease law before marketing the property. The details of the revenue definition and the threshold structure are decisive factors in the economic success of the model for both parties.

Frequently Asked Questions

Does the sales-based rent also apply to online sales?

This depends entirely on the contractual provisions. In older contracts (prior to 2015), online sales are often not explicitly addressed, which leads to disputes over interpretation. Newer contracts define exactly which sales are to be included: in-store sales, click-and-collect (order online, pick up in-store), and returns from online purchases that are processed in-store. Tenants should insist on a clear distinction that does not disproportionately burden the growing online share of their business. Landlords, on the other hand, have a legitimate interest in ensuring that not all revenue is shifted to the internet without the leased space receiving a share.

How does the tenant report their revenue?

It is customary to submit an annual audited revenue statement, certified by a public accountant or tax advisor. Monthly advance payments based on the previous year’s revenue, with annual reconciliation, are the standard in shopping centers. Landlords can typically contractually agree to the right to inspect cash journals, business reports, and annual financial statements. If there is reasonable suspicion of false reporting, a special audit right by an independent auditor may be agreed upon at the tenant’s expense-however, excessive additional claims by the landlord may then also trigger claims for damages by the tenant.

Is turnover rent treated the same as regular rent for tax purposes?

In principle, yes: revenue-based rent is taxable for the landlord as income from renting and leasing (Section 21 of the German Income Tax Act (EStG)). For landlords who have opted for value-added tax (Section 9 of the German Value-Added Tax Act (UStG) for commercial leasing), the base rent and revenue share are subject to 19% value-added tax; the tenant may claim the input tax credit if they are themselves subject to sales tax. Special note: Even variable revenue shares are subject to sales tax in full-the tax rate does not depend on the amount of the tenant’s revenue.

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