What Is a Percentage Lease?

Percentage leases are common in the retail industry. They are typically used when tenants operate a business in a space they do not own.

Under a percentage lease, the tenant agrees to pay the landlord a percentage of their sales in addition to a fixed base rent. For example, if a tenant has agreed to a percentage lease with a 5% rate and generates $100,000 in sales over a year, they would owe the landlord $5,000 in additional rent.

Percentage leases can be beneficial for both landlords and tenants. For landlords, they provide a source of income that is not directly linked to the performance of the tenant's business, and for tenants, they can help to keep their overall rental costs down if their business is doing well. However, percentage leases can also be risky for tenants if their business slows down or experiences an unexpected drop in sales.