Legal Definitions - percentage lease

A percentage lease is a type of commercial rental agreement where a tenant pays a base rent amount, plus an additional payment that is calculated as a percentage of their gross sales or revenue generated from the leased property. This arrangement is common in retail and service industries, allowing landlords to share in the success of their tenants, especially in high-traffic locations.

Here are some examples to illustrate how a percentage lease works:

• Example 1: Boutique Clothing Store

  Imagine a trendy clothing boutique leasing space in a popular shopping mall. Their lease agreement specifies a base rent of $3,000 per month, plus 5% of all gross sales exceeding $50,000 in any given month. If the boutique sells $70,000 worth of clothing in a particular month, they would pay the $3,000 base rent, plus 5% of the $20,000 ($70,000 - $50,000) in sales above the threshold. This means an additional $1,000, for a total rent of $4,000 for that month.

  This illustrates a percentage lease because the total rent payment fluctuates based on the store's sales performance, combining a fixed base amount with a variable percentage component.

• Example 2: Restaurant in a Tourist District

  Consider a new seafood restaurant opening in a bustling tourist district. Their landlord offers a percentage lease with a low base rent of $5,000 per month to help them get started, but also includes a clause for 7% of all monthly revenue, with no specific sales threshold. If the restaurant brings in $100,000 in food and beverage sales during a busy summer month, their rent would be $5,000 plus 7% of $100,000, totaling $12,000 for that month. If sales drop to $60,000 in an off-season month, their rent would be $5,000 plus 7% of $60,000, totaling $9,200.

  This demonstrates a percentage lease where the landlord directly benefits from the restaurant's overall success, as a portion of all revenue contributes to the rent, alongside a consistent base payment.

• Example 3: Specialty Coffee Shop

  A small, independent coffee shop signs a lease for a prime corner location in a busy downtown office building. Their agreement includes a base rent of $2,500 per month, and an additional 3% of gross sales over $20,000. During a month where office workers are frequently buying coffee and pastries, the shop might achieve $35,000 in sales. Their rent for that month would be $2,500 plus 3% of the $15,000 ($35,000 - $20,000) exceeding the threshold, resulting in an extra $450, for a total rent of $2,950.

  This example highlights a percentage lease where the landlord participates in the upside of the coffee shop's strong performance, receiving a higher rent when the business thrives beyond a certain sales volume.