What is a percentage lease?

A percentage lease is a type of lease agreement commonly used in retail commercial real estate. In a percentage lease, the tenant pays a base rent amount plus a percentage of their gross sales generated on the leased property.

The percentage amount is typically negotiated between the landlord and tenant and can vary depending on the type of business, location, and lease terms. This type of lease structure is beneficial for both parties as it allows the landlord to share in the success of the tenant's business and provides additional income based on the tenant's performance.

Percentage leases are often used in shopping malls, strip malls, and other retail locations where the landlord wants to align the tenant's success with their own. It can also help incentivize tenants to drive more traffic and increase sales on the property.

It is important for tenants to carefully review and negotiate the terms of a percentage lease to ensure they are not paying an excessive amount based on their sales performance. Additionally, landlords should clearly outline the calculation and payment terms in the lease agreement to avoid any misunderstandings or disputes in the future.