It’s a lease model where the tenant pays a lower fixed base rent plus a percentage of gross sales above an agreed breakpoint, letting rent rise and fall with store performance.

Landlords share upside when sales spike, while tenants enjoy reduced fixed overhead during slower periods—creating a win‑win alignment of incentives.

If your sales fluctuate seasonally or you’re launching a concept and want lower fixed costs, a percentage lease can soften early‑stage cash‑flow risk. Established tenants with predictable revenue may prefer standard fixed rent.

You report gross sales monthly. Once cumulative sales for the lease year pass the breakpoint, you pay the agreed percentage rate (e.g., 6 %) on the excess. Any owed amount is typically paid monthly with a year‑end true‑up.

Mostly in retail settings—shopping centers, outlet malls, airports, entertainment districts—but it’s also common in restaurants, movie theaters, and some hospitality venues.

The breakpoint is the revenue threshold that triggers the variable rent. A lower breakpoint means you’ll pay percentage rent sooner; a higher breakpoint delays it.

Minimum (base) rent guarantees landlords a predictable income floor, while the percentage component rewards performance. Balancing the two protects both parties’ interests.

Divide the annual base rent by the percentage rate. Example: $48 000 base ÷ 6 % = $800 000 breakpoint.

Tenant and landlord negotiate a sales threshold that suits the business model—often tied to pro‑forma forecasts or seasonal expectations.

Holiday spikes can push sales past the breakpoint quickly. Many tenants negotiate timing or reporting accommodations so cash‑flow shocks don’t hit all at once.

Subtract prior‑period sales from current‑period sales, divide by prior‑period sales, then multiply by 100 to get the percentage increase or decrease.

Key pieces: base rent, percentage rate, breakpoint, definition of gross sales, audit rights, record‑retention period, and reporting schedule.

"Tenant shall pay Landlord six percent (6 %) of Gross Sales in excess of $800 000 for each lease year, payable with the monthly statement and reconciled annually." Always tailor language to your deal.

Yes. Most leases call for a final reconciliation covering sales accrued up to the vacate date. Any percentage rent still due becomes payable even after the term ends.

Tenants submit monthly (or quarterly) sales statements. Landlords usually reserve the right to audit records once per year, at their expense, to verify accuracy.

Late reports can trigger late fees; inaccuracies found in an audit may result in back rent plus interest and audit costs.

Typically: sales tax, returns, employee discounts, gift‑card redemptions, and inter‑store transfers. Online sales may be excluded or prorated—read your lease.

Tenants deduct percentage rent as an operating expense; landlords treat it as rental income. Both must follow normal GAAP and IRS rules for timing and documentation.

Landlords include it in Schedule E rental income; tenants record it in the rent line of their income statement. Consult your accountant for state‑specific nuances.

Key issues: defining gross sales, audit rights, breakpoint adjustments, force‑majeure relief, and compliance with REIT rules if the landlord is a REIT.

Net leases pass property expenses (taxes, insurance, CAM) to tenants; percentage leases tie part of rent to sales. Some hybrid "percentage‑net" structures exist.

Latin for “on equal footing.” In leases it describes payment obligations that rank equally—used when percentage and base rent are proportionally adjusted.

Forbury’s valuation software models percentage rent under “Retail Income Streams” → “Turnover Rent.” Enter breakpoint and rate to forecast variable income.

Pull your lease’s percentage‑rent clause, breakpoint schedule, and audit language. Then consult legal counsel or our lease‑review team for bespoke advice.

The sales threshold that triggers percentage rent. Below it, only base rent is due; above it, the percentage rate applies to the excess.

Rates vary by sector: apparel 5‑7 %, food‑and‑beverage 5‑8 %, jewelry 7‑10 %. Benchmarks come from industry comps and landlord underwriting.

Leases increasingly include a proration formula—crediting in‑store pickups or local‑delivery ZIP codes—to ensure brick‑and‑mortar performance isn’t masked by e‑commerce.

Only if the breakpoint or rate is set unrealistically low. Model scenarios before signing, and negotiate caps or graduated rates if needed.

Yes—restaurants, gyms, co‑working spaces, cinemas, and some medical clinics use them when revenue correlates strongly with location footfall.