Percentage Lease
A commercial lease agreement where the tenant pays a base rent plus an additional percentage of their gross sales revenue that exceeds a predetermined threshold. This lease structure allows landlords to share in tenant success while providing tenants with lower fixed costs during slower business periods.
Example
“The retail store's percentage lease required them to pay $5,000 base rent plus 3% of any monthly sales exceeding $200,000.”
Memory Tip
Think of the landlord as a silent business partner taking a 'percentage' of your success - the better you do, the more they get.
Why It Matters
Percentage leases help retail tenants manage cash flow risk by tying some rent payments to actual business performance rather than fixed costs. Landlords benefit by participating in successful tenant operations and potentially earning more than standard market rent in high-performing locations.
Common Misconception
Many assume percentage leases always cost more than traditional leases, but they can actually reduce occupancy costs during slow sales periods while sharing upside during successful periods.
In Practice
A retail store might sign a percentage lease with $5,000 monthly base rent plus 3% of gross sales exceeding $200,000 annually. In a strong sales year generating $400,000 revenue, the tenant would pay the base rent plus an additional $6,000 (3% of the $200,000 excess sales).
Etymology
Combines 'percentage' from Latin 'per centum' (by the hundred) with 'lease' from Old French 'laissier' (to let go) - you let go of extra money based on sales percentages.
Common Misspellings
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