Average Percentage Rents Charged in Commercial Leases

Percentage Rent Is Usually About 7 Percent

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A percentage lease is one that requires a tenant pay "base rent," then a percentage on top of that based on monthly sales volumes. Percentage leases are commonly executed in retail mall outlets. The location and nature of your business can have a dramatic impact on percentage rent.

This type of lease agreement is most common for businesses with notoriously hefty sales, but even a small business that wants to take up residence in a mall may be subject to it.

 

The Percentage of Sales 

Percentage leases don't take a percentage of all sales. They include a percentage paid to the landlord or lessor only when a tenant has made a certain amount and exceeded a certain sales threshold in any given month. For example, a percentage lease might require a tenant to pay 7 percent of all sales that exceed more than $25,000 in any given month. Seven percent is a common percentage lease figure.

The Breakpoint 

Your breakpoint is the point at which a landlord will typically require that you begin paying percentage rent. It's the point where your percentage rent equals your base rent. You can calculate it by dividing your base rent by the percentage your landlord wants to charge you. For example, your base rent might be $4,000 per month. If you divide that number by 7 percent, it comes out to $57,142. This is the point at which you would begin paying percentage rent – when your gross receipts surpass this mark.

You must pay 7 percent of each and every dollar in sales over this amount. 

It's important to note that your gross receipts are what count here – your revenues before you pay other expenses. In all likelihood, any potential landlord will ask for your minimum yearly sales and calculate your base rent from this information 

Negotiate 

There may not be much wiggle room to negotiate the percentage amount, although you might find that a landlord is somewhat open to discussing the sales threshold after which it kicks in. Obviously, the higher it is, the better for you. Until you reach this point, you don't have to share your revenues – the money is all yours.

Be Cautious 

You should never sign any lease without attempting to negotiate better terms. Percentage leases are complex and could cost you a lot of money down the road, so it pays to have an attorney review any agreement before you sign. 

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