Tenants will sometimes offer or agree to pay percentage rent above a certain "natural break point". Most commonly this break point is the percentage of a tenant's annual dollar volume of sales that equates to the dollar amount of the base rent the landlord agrees to accept. For example, tenant establishes a sales projection of $1,000,000 and the agreed upon base rent is $80,000 resulting in a 8% percentage rent. Landlord receives $80,000 rent and 8% of sales above $1,000,000 for each year. If the base rent is scheduled to increase during the lease term the corresponding "break point" will increase accordingly. Before entering into a percentage rent lease the landlord should have some knowledge of the tenant company's average store sales in similar locations or hire someone to do the due diligence.
Jul 15, 2013