What is a percentage lease?

A percentage lease is defined as a leasing arrangement whereby the rent a tenant pays is directly linked to their sales performance, specifically a percentage of the tenant's gross sales revenue. This type of lease is commonly used in retail environments, where landlords want to ensure that as their tenants succeed and generate more sales, the landlord also benefits from increased rental payments.

Typically, a percentage lease has a base rent component, which provides stability for the landlord, and the variable percentage component that aligns the interests of both the landlord and tenant. This structure incentivizes the landlord to support the tenant in achieving sales growth, as higher sales result in higher rental income. Moreover, this lease structure is beneficial for tenants, particularly in new or unstable markets since it allows them to pay rent that corresponds with their sales volumes, alleviating some financial pressure during slower sales periods.

Options suggesting a fixed monthly payment, an annual adjustment based on inflation, or a yearly bonus for exceeding sales targets do not incorporate the key characteristic of a percentage lease, which focuses on tying rental obligations to sales performance.