What is a Percentage Lease?
A percentage lease is a type of commercial lease in which the tenant pays a base rent plus a percentage of their sales or profits as additional rent. The percentage is usually a fixed amount, and it is typically calculated on a monthly or quarterly basis.
Percentage leases are commonly used in the retail industry, where they are used to align the interests of the tenant and the landlord. Under a percentage lease, the landlord's income is directly tied to the success of the tenant's business, which gives the landlord an incentive to help the tenant succeed.
Percentage leases may also include provisions for minimum rent, which is a minimum amount that the tenant must pay even if their sales or profits are below a certain threshold. Minimum rent provisions are intended to protect the landlord's interests and ensure that they receive a certain amount of income from the tenant regardless of the tenant's performance.
Percentage leases can be complex and may require careful negotiation to ensure that the terms are fair and mutually beneficial for both the tenant and the landlord. They may also require the tenant to keep detailed records of their sales and profits in order to accurately calculate the percentage rent.