When the Tills Are Quiet: Why Councils Should Take a Share of Turnover, Not a Fixed Rent

Ask most founders what they want from a landlord and they will say the same thing: a rent they can afford before the customers arrive. Ask most councils what they want from a commercial tenant and they will say: certainty. Those two wishes are not natural allies. A fixed rent is a bet that the business will trade steadily from day one. For a new bakery, barber or small manufacturer, that is often a bet against them.

The fixed-rent trap

Local authorities own thousands of commercial units. Some are in town centres, some on light-industrial estates, some tucked under housing blocks or beside leisure centres. Many were bought or built in a different retail era. The standard lease still tends to look familiar: a rent set by market comparables, paid quarterly in advance, reviewed every few years, with a deposit and a repairing obligation.

That model works for established businesses with predictable tills. It is awkward for early-stage firms. A founder may have a good product, a sensible plan and a modest fit-out budget, but no trading history. The council wants assurance that rent will be paid. The founder wants assurance that a quiet January will not sink the business. Both end up protecting themselves against the same uncertainty, and the unit stays empty.

The result is familiar on too many high streets: shuttered council-owned units next to private landlords offering short lets, while founders cluster in co-working spaces or market stalls because they cannot sign a five-year lease. Councils lose income and footfall. Founders lose a visible pitch. Town centres lose the very thing that makes them feel alive: a reason to walk down the street.

A lease that moves with the till

The alternative is a pay-as-you-grow lease. It is not a grant and it is not a freebie. It is a commercial lease with two parts: a modest base rent and a transparent share of turnover. The base rent should cover the council's unavoidable costs, such as insurance, maintenance and management, rather than trying to extract full market rent from day one. The turnover share then gives the council a slice of the upside if the business thrives.

The design details matter more than the slogan. A pilot could work like this. The council sets a base rent at a clear proportion of independently assessed market rent, with a published method for how that proportion is chosen. Turnover is reported quarterly, VAT-exclusive, with a standard definition and audit rights. The share applies only above a threshold, so a very small business is not handing over pennies before it has found its feet. Total rent is capped so the tenant is not punished for growing, and the council is not accused of rigging the market. Break clauses at six or twelve months give both sides an exit.

That last point is important. A lease that is flexible for the tenant but impossible for the council to end is not a partnership. A lease that is flexible for the council but terrifying for the tenant is not a pilot. The point is shared risk, not transferred risk.

What the town gets

For founders, the appeal is obvious. Lower fixed costs mean more cash for stock, staff and marketing. A turnover rent also aligns the landlord's interests with the tenant's. If the council wants the high street to work, it should want the shops on it to trade well. A landlord that benefits from footfall is more likely to support marketing campaigns, keep the frontage clean and think twice before letting the neighbouring unit to a competitor that cannibalises the same customers.

For town centres, the gain is less about rent receipts in year one and more about occupied units, working businesses and the data that comes from them. A council with ten turnover leases learns which sectors are growing, which locations need help and which units are simply wrong for modern trading. That is useful evidence for future investment, not just a feel-good story.

There is a social enterprise angle too. Community businesses, repair cafés and local food producers often have steady missions but lumpy revenue. A rent that rises with turnover can make a marginal unit viable without requiring a permanent subsidy. The business stands on its own feet, but on terms that reflect reality rather than a spreadsheet from 2019.

The council's side of the ledger

Councils are right to be cautious. Commercial property income supports front-line services, and a turnover lease can look like a gamble. It also creates administrative work: reporting, verification, arrears management and the occasional awkward conversation about what counts as turnover. Some tenants will underreport. Some will fail anyway. A pilot needs to be honest about that.

There are ways to manage the risk. Keep the pilot small: perhaps ten to twenty units across a high street and a light-industrial estate, with a published evaluation after two years. Use a standard lease and a simple reporting template. Require independent verification for larger tenants. Set the base rent at a level that covers fixed costs, so the council is not subsidising empty space. Cap the turnover share and review it annually. Publish anonymised results so the model can be scrutinised.

Councils also have a duty to obtain best consideration when disposing of or letting land. A turnover lease can satisfy that duty if it is properly valued. The test is not whether the rent is high in month one; it is whether the whole package, including the share of turnover and the reduced risk of vacancy, represents a sensible commercial deal. That is a valuation question, not an ideological one.

Rules, not vibes

The 2026 policy environment is more accommodating than it might first appear, but only if councils are disciplined. Subsidy control is the main hurdle. A turnover rent is not automatically a subsidy. If the terms match what a private landlord would reasonably offer, the lease can be treated as commercial. Councils should document that with an independent valuation or a clear market-equivalent assessment. Where a package includes extra support, such as fit-out contributions or rent holidays, those elements may need to be structured under the minimal financial assistance threshold or a published subsidy scheme, with proper records.

Procurement rules matter too, though not in the way people sometimes assume. A council letting a unit is not buying a tenant. But if it appoints a managing agent, commissions works or buys services to support the pilot, those contracts need to follow the procurement regime. The Procurement Act 2023, in force since 2025, puts more emphasis on transparency and contract management. That is helpful here: publish the tenant criteria, publish the lease terms, publish the evaluation. A scheme that looks fair is easier to defend than one that looks like a favour.

Start with ten units

The pay-as-you-grow lease is not a magic wand. It will not fill every empty unit, and it will not suit every business. A law firm or a long-established manufacturer may prefer a conventional lease. But for the founder taking a first shop, the community business testing a second site, or the small maker moving out of a garage, it offers something valuable: a way to share the early risk without pretending it does not exist.

Britain does not need every council to become a venture capitalist. It needs more public landlords to act like long-term partners. Ten units, a clear lease and a proper evaluation would be a sensible place to start. If the tills are quiet, the rent should be too.