Definition Definition

Percentage Lease: Understanding Percentage Lease with Practical Example

What is a Percentage Lease?

A Percentage Lease is the one where the lease provides a rental rate based on a percentage of any income collected by any business conducted on the very same rental property. However, due to the apparent benefits they provide to landlords and tenants, proportion leases are extensively employed in commercial property.

Understanding Percentage Lease

In addition to the base rent, the landowner obtains a proportion of the revenue generated by any organization in this lease. When compared to a standard lease, the basic rent is usually lower. The minimum rent is compensated for by the increased potential for improvement of a percentage lease. The profits, as well as the losses, are shared by the landowner in the form of decreased rent. This type of connection is referred to as a "quasi-partnership."

Some renters may be drawn to the provisions of a percentage lease since they typically have a cheaper monthly fixed rental expense. Furthermore, in multi-tenant properties, the lease is widely implemented, which means how these storefronts or retail complexes are a perfect pull for other companies in the property and can assist tenants, including big and medium sales. 

The opportunity to determine the type of businesses and organizations located within the commercial space is another advantage of percentage leases for the building owner. As a result, strategic leasing can bring more clients to the area, allowing the landowner to renegotiate a proportion of the value.

Practical Example

A lease agreement demands a landlord to pay 6% of all revenues in any particular month that surpasses $20,000 in sales. However, 10% is a popular percentage lease figure, so be wary if your landlord wants to charge you 10% or 12%.

In Sentences

  • The term percentage lease is commonly used to indicate a predetermined base rental rate that has some financial implications.


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