Breakpoints and accumulated turnover
In many commercial lease agreements, turnover-based rent (rent calculated as a percentage of turnover) is only charged when the lessee’s turnover exceeds a predefined turnover breakpoint. Only the turnover above the breakpoint is used to calculate additional turnover rent.
This ensures that the lessee only pays extra rent if their business performs above an agreed baseline.
Although turnover is typically reported in shorter periods (for example monthly), the breakpoint is often defined for a longer period, such as a quarter or a full year. To allow fair comparison, turnover is then accumulated over time and compared to a cumulative breakpoint - that is, the portion of the total breakpoint that applies at a given point.
There are two common ways to define breakpoints over time:
• Fixed breakpoint: The same breakpoint amount is applied in each settlement period.
Example:
If the annual breakpoint is $12,000, each monthly settlement period uses a fixed breakpoint of $1,000.
• Cumulative breakpoint: The breakpoint increases progressively over the settlement periods within a longer accumulation period (such as a year or a quarter). Instead of dividing an annual breakpoint evenly across all periods, each period adds to the cumulative breakpoint. This makes the comparison between turnover and the applicable breakpoint more time-sensitive and reflective of performance over time.
Example:
◦ Month 1: breakpoint = $1,000
◦ Month 2: cumulative breakpoint = $2,000
◦ Month 3: cumulative breakpoint = $3,000
◦ ...
◦ Month 12: cumulative breakpoint = $12,000