Percentage rent at 4-8% of gross sales adds up fast, and artificial breakpoints or overly broad gross sales definitions can trigger payments prematurely.
A percentage rent clause requires the tenant to pay additional rent based on a percentage of gross sales above a specified breakpoint. This is most common in retail leases where the landlord shares in the tenant's commercial success. The clause defines the percentage rate, the breakpoint calculation, what constitutes "gross sales," and the reporting requirements.
Percentage rent interacts with CAM charges in important ways. In some leases, CAM charges are deducted from the percentage rent calculation, while in others they are entirely separate. Errors in the gross sales definition, breakpoint calculation, or the interaction between percentage rent and CAM can result in significant overpayments. Tenants need to understand how these two streams connect.
“In addition to Minimum Rent, Tenant shall pay to Landlord as Percentage Rent an amount equal to six percent (6%) of Tenant's Gross Sales during each Lease Year in excess of the Natural Breakpoint. The "Natural Breakpoint" shall be calculated by dividing the annual Minimum Rent by the Percentage Rent rate. "Gross Sales" shall mean all revenues from the sale of goods and services at or from the Premises, excluding returns, sales taxes collected, and sales between Tenant's affiliated stores. Tenant shall deliver a certified statement of Gross Sales within sixty (60) days after each Lease Year.”
This is illustrative language only. Your actual lease language controls your rights.
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4-8%
Typical percentage rent rates range from 4% to 8% of gross sales depending on the retail category [industry estimate]
Source: ICSC / Retail Lease Data (2024)
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Go to lextract.ioThis 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.
