A lease structure where the tenant pays a base rent plus a percentage of gross sales above a specified breakpoint. Common in retail properties, particularly shopping centers and malls.
In a percentage lease, the tenant pays base rent plus a percentage (typically 4% to 10% depending on the retail category) of gross sales exceeding a natural or artificial breakpoint. The natural breakpoint is calculated as base rent divided by the percentage rate. Sales above that figure generate additional "overage rent." The lease must precisely define gross sales (inclusions and exclusions), the reporting period, audit rights for the landlord, and whether online or off-premises sales are captured. Tenants in percentage leases frequently negotiate radius restrictions, co-tenancy clauses, and go-dark rights.
A landlord includes online sales, gift card redemptions, and inter-store transfers in the gross sales definition, inflating the sales figure well above actual in-store revenue and generating overage rent that does not reflect the location's performance.
Negotiate the gross sales definition carefully. Exclude online sales not fulfilled from the premises, returns, employee discounts, sales tax collected, and inter-company transfers. These exclusions can save thousands in overage rent annually.
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Find My OverchargesThis page provides general educational information. It is not legal advice and may not reflect the most current law in your state. Consult a licensed attorney for advice specific to your situation.
