Percentage rent is used in retail leases where the landlord has bargaining power to demand a share of the tenant's economic gains.
Demand for retail space may be high or a landlord's specific location may be particularly attractive such that the tenant is willing to pay not only a fixed amount of rent but a share of its gross revenue. These types of leases require a sophisticated understanding of the underlying economics of tenant's business.
These leases also require very careful drafting.
- How is gross revenue defined?
- Is there a minimum amount or a maximum amount?
- How are these numbers verified?
- And what are all the related protections for the landlord or the tenant?
This program provides a practical guide to negotiating and drafting percentage leases.
- Circumstances where percentage rent is commonly seen
- Economics of percentage rent – landlord and tenant perspectives
- Defining key terms – "gross sales," exclusions, percent of rent
- Determining thresholds – minimum rent, sliding scales
- Financial reporting and audit rights
- Important related provisions – non-competition, continuous use, payment terms