What is a Percentage Lease? by Kevin Sanz, CCIM, MSIRE

Posted on January 28, 2021

The COVID-19 pandemic has given way to some creative commercial lease arrangements that can provide a win-win for both property owners and tenants struggling with business interruptions in a socially distanced environment. One example is a percentage lease, commonly used in shopping malls. Under the terms of a percentage lease, a tenant agrees to pay a fixed, base rent plus an additional amount that varies based on a percentage of the sales it generates at that location. This flexibility allows tenants to pay fixed rental costs below market rates when sales are down while providing property owners with the potential for additional income when sales are up. It is important to note, however, that these types of leases are quite complex and require both tenants and landlords to recognize and fully understand the additional risks they share with these arrangements.

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