In a percentage lease, a breakpoint is a specific sales threshold that, when reached, triggers a change in the amount of rent that the tenant is required to pay. Percentage leases are a type of commercial lease in which the tenant's rent is based on a percentage of their sales.
Typically, a percentage lease will have one or more breakpoints, each corresponding to a different sales threshold. For example, a percentage lease might have a breakpoint at $500,000 in sales, at which point the tenant's rent would increase from 5% of their sales to 6%.
Breakpoints are often used in percentage leases to provide an incentive for the tenant to increase their sales, as reaching a breakpoint can result in a lower rent rate. They can also help to protect the landlord by ensuring that the tenant is paying a fair market rate for the space based on their sales volume.
Breakpoints may be based on the tenant's total sales, or they may be based on the sales of specific products or services. They may also be adjusted periodically to reflect changes in market conditions or the tenant's business.
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