A retail unit's annual rent passing is agreed at 5% per annum of the turnover generated from
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Question:
A retail unit's annual rent passing is agreed at 5% per annum of the turnover generated from the property each year, including its online revenue but subject to a minimum base rent of 300,000 per annum. Sales have been on the rise and last year the business recorded a total income including online sales of 6 million. Market sources indicated a growth of 3% per annum in turnover for similar businesses over the next five years.
(a) Value the freehold interest of the property assuming a yield for the base rent of 7% per annum and a target rate of return of 8% per annum and, making any other necessary assumptions as appropriate.
(b) Explain the implications of this turnover lease arrangement to landlord and tenant.
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