A percentage lease is a type of commercial real estate lease that requires the tenant to pay a base rent, plus a percentage of their annual gross sales. This type of lease is most commonly used in retail or restaurant businesses, as it provides the landlord with a stable income stream while also providing the tenant with incentives to increase their sales.
The base rent is a fixed amount, which is agreed upon at the beginning of the lease. The percentage lease requires the tenant to pay an additional percentage on top of the base rent. This percentage is based on the tenant's total gross sales during the lease period. This can range from 5-15%, depending on the agreement between the landlord and tenant.
The percentage lease is beneficial for both parties. The landlord receives a stable income stream, as well as the opportunity to benefit from the tenant's success. The tenant enjoys the stability of a fixed base rent, but also has the opportunity to reduce their total rent expenses if their sales increase.
When a tenant is considering a percentage lease, there are a few things to keep in mind. The tenant should make sure that the percentage is reasonable and that they are able to make the payments.
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