Find out how the flexible rental model with a base rent and variable portion works, what advantages it offers and what legal aspects need to be considered.
Traditionally, commercial leases in Switzerland are often agreed as a fixed monthly amount. However, a flexible rental model is often desirable, especially in dynamic sectors such as retail or gastronomy: the turnover-linked rent. Instead of a fixed rent, a combination of a base rent (minimum rent) and a variable portion that depends on a percentage of the turnover generated is defined here. This model offers opportunities for both parties, but also entails certain risks and requires a prudent contract design. Below you will find a comprehensive overview of how turnover-based rent works, what the legal framework is and how this model plays out in practice.
Turnover-based rent is a rental model in which the final rent is based, at least in part, on the tenant's turnover. Typically, this rent consists of two components:
Base rent (minimum rent): a fixed amount that the tenant always pays, regardless of business performance. This base rent covers the landlord's most important costs and prevents the risk of no income at all if the tenant's sales are weak.
Turnover-dependent portion: A contractually specified percentage of the relevant turnover, which only comes into play if it is above the base rent.
This means that the tenant always pays at least the agreed base rent. However, if revenues increase significantly, the rent also increases because the percentage share then becomes relevant. Legally, this model is supported by freedom of contract (Art. 19 of the Swiss Code of Obligations). Although the Swiss Code of Obligations has special rules for indexed and graduated rents, it does not have any for turnover-based rents. However, since the rent must be determinable, this hybrid form (base rent plus variable component) is in principle permissible. The statutory tenant protection (Art. 269 ff. OR) usually refers primarily to the base rent, while the turnover share in the current contract is largely subject to the negotiated risk sharing.
The following example illustrates the principle of flexible rent. Let's take a small shop in Zurich that has a monthly base rent of 5,000 francs. In addition, a percentage of 5 per cent of the monthly turnover is due if the turnover is high enough for 5 per cent of it to be over 5,000 francs. In quieter months, only the base rent applies, but in the event of higher turnover, the rent can increase. The landlord benefits from the success of his tenant, but at the same time protects himself with the base rent. The specific limit above which the percentage rent takes effect (here CHF 100,000 monthly turnover) acts as a break-even point. It is only above this turnover threshold that the landlord earns more than the minimum rent.
There is no general answer to the question of how high this percentage usually is. The percentages are often based on the respective industry, the location and the margin structures of the business. In Swiss retail, values between 3 - 7% are found, and in highly frequented shopping centres it can easily be more. In the restaurant business, the rates are often in the range of 6-9%; for fast-food concepts with high customer frequency, up to 14% is possible. These higher values usually reflect the special quality of the location and the typical profit margins in this segment. As a general rule, the lower the base rent, the higher the percentage share is likely to be – and vice versa.
It is important that the distribution of risks and opportunities remains fair and that the business idea is viable for both sides based on realistic assumptions. A comprehensive sales and cost calculation is therefore essential. Similarly, the tenants should bear in mind that high sales do not automatically lead to higher profits, as personnel costs or the cost of goods sold, for example, also increase.
Turnover-based rent is widespread in the retail sector in Switzerland, particularly in shopping centres. These are usually actively managed to achieve an attractive mix of sectors and high customer frequency. The landlord often sees himself as a partner to the tenant here, because both have an interest in increasing sales. In addition to the fixed basic rent, the sales generated during periods of strong sales can lead to a significantly higher rent, rewarding the landlord's investments in location marketing.
It becomes more complex when in-store and online sales merge. With click-and-collect services or online orders that are picked up in-store, the question arises as to whether and how these sales are to be included. That is why a clear definition in the lease is essential. This is the only way to avoid disputes about which revenues are actually attributable to the retail store.
The turnover-based rent model is also widespread in gastronomy and comes in different forms. The percentages are often in the mid to upper single-digit range. Turnover can vary greatly due to seasonal fluctuations, weather and changing trends. Accordingly, a flexible rent model that provides relief in slow months is attractive for restaurateurs. However, they also have to pay more during peak periods. Particularly for fast food concepts, double-digit percentages are not uncommon, since high sales per square metre are generated in prime locations.
It is important to define the relevant turnover precisely: What happens to tips? Are revenues from delivery services added? Are commissions deducted? The treatment of cashless payments or online services (e.g. delivery platforms) should also be clearly defined in the contract so that both sides know which revenues apply as the basis for calculation.
Although sales-based rent is not explicitly regulated in the Swiss Code of Obligations, it is based on the general freedom of contract (Art. 19 CO) and the requirement that the rent must be determinable. In the event of a dispute, the base rent can be challenged if it appears excessive. The variable portion, on the other hand, is considered a risk-sharing agreement that is difficult to challenge on the grounds of abuse.
Some key points:
Tenant protection (Art. 269 ff. OR): Usually only applies to the base rent.
Contestation of initial rent (Art. 270 OR): Within 30 days of taking over the property, the tenant can also have the turnover rent component checked for unfairness.
The notice periods, rights of retention and other provisions apply as they do for conventional commercial leases.
Because the law does not provide any specific rules for turnover-based rents, all the details – from the definition of turnover to reporting and auditing obligations and possible operating obligations – must be contractually specified. Ambiguously formulated clauses are a common cause of conflict.
A well-drafted contract is crucial for turnover-based rent. Since variable rent is not standardised by law, misunderstandings may arise if the types of revenue included in the calculation are not precisely defined. The tenant's obligation to disclose sales figures can also be tricky because it requires deeper insights into internal company data. The landlord will usually want to be granted the right to audit the tenant's books to ensure that no sales are being concealed.
Particular stumbling blocks:
asymmetrical information: the tenant knows all the revenues in detail, while the landlord has to rely on the reported figures.
limited privacy: since the tenant may have to disclose business data, there may be concerns about trade secrets.
Proportion of online business: In multi-channel models, complex questions arise regarding the allocation of sales.
Base rent as a minimum cost block: This helps the landlord to cover fixed costs, but can be a burden for the tenant in bad times.
As already mentioned, both sides should also bear in mind that sales growth does not always mean higher profits on a one-to-one basis, since costs for personnel and raw materials usually rise in parallel.
Despite the risks and possible conflicts mentioned above, turnover rent does have its advantages. It ensures a certain degree of risk sharing: when business is slow, tenants are relieved, and when sales are good, the landlord benefits. In sectors with highly fluctuating demand – such as seasonal businesses or in gastronomy and retail – this is often a sensible solution. Furthermore:
Shared interest: Both sides have a specific interest in developing the business in the best possible way. The landlord can actively invest in marketing in a shopping centre or restaurant strip to increase the turnover of all tenants, from which he benefits directly in the turnover-based rent model.
Location promotion: The variable component often motivates landlords to make their property attractive (e.g. good accessibility, modernised building, advertising campaigns).
Predictable base rent: The minimum amount ensures that the landlord receives a calculable base amount, while the tenant knows that he only pays more above a certain turnover level.
In this respect, a well-designed turnover rent can create a win-win situation in which both parties maintain not just a pure rental agreement but a kind of partnership.
Turnover rent is particularly popular in Switzerland in sectors with fluctuating demand and high margin pressure. It offers flexibility but also requires a thorough contractual design, as the Swiss Code of Obligations does not provide any detailed specifications here. Essentially, it combines a base rent with a variable, turnover-dependent component that only takes effect above a defined break-even point. If the business is successful, the payments increase, compensating the landlord for the shared risk. At the same time, tenants are not burdened by an excessive fixed rent during bad periods.
It is important to clearly define all the details in the contract, from the exact definition of turnover to audit rights, reporting deadlines and possible operating or competition protection clauses. For tenants, the affordability of the base rent is crucial, as it represents an existential financial floor. Landlords should bear in mind that they will benefit in the long term from a competent, successful tenant if they realistically assess the tenant's sales potential and agree fair conditions. In the long term, a sales-based rent can be a real win-win solution that serves the interests of both sides and opens up new opportunities in demanding, highly competitive markets.
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