Percentage Leases in Retail: How They Work
When a retail landlord shares in the tenant's sales through percentage rent.
What is a percentage lease?
A percentage lease is a retail lease in which the tenant pays a base rent plus a percentage of its gross sales above a set threshold, called the breakpoint. It lets the landlord share in a successful store's upside while giving the tenant a lower fixed rent in slower periods.
How percentage rent is calculated
The tenant pays the fixed base rent every month. Once the store's sales pass the breakpoint, the tenant also pays an agreed percentage of the sales above that number. The breakpoint can be a negotiated dollar figure or a "natural breakpoint," calculated by dividing the annual base rent by the percentage rate.
Where percentage leases are used
Percentage rent is most common in shopping centers, malls, and high-traffic retail corridors, where a landlord's leasing strategy depends on tenant sales performance. It is far less common for office or industrial space. Restaurants and destination retailers are frequent candidates.
Key terms to negotiate
- Definition of "gross sales" — what is included and excluded (returns, online orders, gift cards);
- Breakpoint — natural vs. an artificial (negotiated) figure;
- Reporting and audit rights — how sales are reported and verified;
- Co-tenancy and exclusive-use protections that affect the tenant's ability to actually generate sales.
How Nochumson P.C. helps
Nochumson P.C. structures and negotiates retail and commercial leases for landlords and business tenants, including percentage-rent and restaurant deals. Contact us to discuss your retail lease.
Related articles:
- Gross Lease vs. Net Lease: What's the Difference?
- Triple Net (NNN) Lease: What Tenants & Landlords Should Know
- Commercial Lease Agreements: Key Terms to Negotiate
- CAM Charges Explained (Common Area Maintenance)
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