If you are venturing into retail and looking to rent a premise in a shopping mall, you are likely to come across an offer from the landlord that looks something like this:
$20.00 psf/month + 1% OR 11% of Gross Turnover, whichever is higher
The + 1% or 11% of Gross Turnover is commonly referred to as GTO Rent. What this means is that on top of the Base Rent ($20 per square feet per month in the example above), you will also need to pay rent calculated as a percentage of the sales generated at the premise.
Assume you are a GST-registered business and you are looking to rent a premise that’s 350sf.
If a month’s sales, inclusive of 7% GST, is $30,000:
- Your Gross Turnover is $28,037.38 ($30,000 ÷ 107%);
- You will have to pay Base Rent of $7,000 ($20 x 350sf);
- In addition to the base rent, you will have to pay Turnover Rent of $280.37 (1% of $28,037.38);
- Hence, the Gross Rent payable is $7,280.37 ($7,000 + $280.37).
What about the OR 11% of Gross Turnover? This OR GTO kicks in in those months when the Gross Rent as a percentage of Gross Turnover is lower than 11%.
If a month’s sales, inclusive of 7% GST, is $75,000:
- Your Gross Turnover is $70,093.46 ($75,000 ÷ 107%);
- Your Base Rent is $7,000 ($20 x 350sf);
- In addition to the base rent, you will have to pay Turnover Rent of $700.93 (1% of $70,093.46);
- The Gross Rent payable is $7,700.93 ($7,000 + $280.37).
- However the Gross Rent payable of $7,700.93 is lower than the OR GTO rent of of $7,710.28 ($70,093.46 x 11%).
- Hence, you will need to pay whichever is higher. In this case, you need to pay $7,710.28 as rent.