Hammerson and Aberdeen are suing John Lewis, claiming the department store giant, owes it a slice of online sales collected from its store at London's Brent Cross shopping centre in a test case for "turnover leases".
Hammerson, which bought out Aberdeen's stake in the mall last year, and Aberdeen, formerly Standard Life Investments, signed the lease with John Lewis Partnership in 1979.
The Financial Times reports that the duo is seeking a declaration from the High Court that click-and-collect sales should be included in the calculation that determines the rent payable. The case revolves around the “turnover rent” provision in the lease, which was agreed in 1979.
Such rents involve all or a proportion of the rent being determined in accordance with the turnover generated by the tenant at the premises.
They have long been a feature of factory outlet centres and were pioneered at the McArthurGlen Designer Outlets. In the food and beverage sector, an agreement is often made based on a base rent with a turnover rent topper. They became increasingly prevalent across retail as ecommerce began to compete more and more with sales at physical stores and then as retailers sought to restructure leases during the pandemic. For a detailed review of the trend click here. Traditional leases are being used more often as the retail sector has recovered in the wake of Covid-19.
The Financial Times reports that according to the terms of that agreement, John Lewis must pay Hammerson additional rent once the store’s annual takings hit certain levels, in addition to a base rent of £30,000 a year.
The terms of the Brent Cross lease were agreed three decades before John Lewis began offering click-and-collect services. The FT reports that under those terms the retailer is liable to pay the landlord 0.7% of the store’s gross receipts when annual turnover from the site exceeds £4 million. If takings exceed £10 million, the payment rises to 1% of turnover. Hammerson and Aberdeen claim that the contract stipulates that “Mail, telephone or similar orders received or filled at or from the demised premises or directed thereto” contributed to gross receipts. They also argue that collection charges, such as the £2.95 levy that John Lewis applies to click-and-collect orders under £40, should be included.
The claimants are seeking the payment of backdated rents.
John Lewis argues online sales and collection charges are exempt from turnover rent calculations because the transaction is completed when the product is dispatched from its main distribution centre.
Callum Jeffreys, director in the retail lease advisory team at Colliers, said: “The till alone is no longer an accurate indicator of turnover and store performance, and so this case highlights the changing way that retail space is valued by both owners and occupiers. It also highlights the need for clear and concise wording that both parties fully understand the implications of at the outset of any lease agreement. It is, however, important that some flexibility is allowed to reflect changing customer habits, with many existing turnover provisions not set up to capture subscription models or third-party delivery platform fulfilment, in addition to click-and-collect sales.”
Hammerson declined to comment. John Lewis declined to comment.