Percentage rent is an additional rent component in certain retail leases, calculated as a percentage of a tenant's gross sales above a specified sales threshold, known as the breakpoint. This structure allows landlords to share in a tenant's upside while offering the tenant a lower base rent, aligning incentives between the two parties as sales grow. A natural breakpoint is reached when base rent divided by the percentage rate equals the sales figure at which percentage rent begins; leases can also set an artificial breakpoint negotiated independently of that formula. Percentage rent clauses are most common with retail categories where sales volume correlates closely with store size and foot traffic, such as apparel, restaurants, and specialty retail, and less common with anchor tenants who often negotiate it out entirely. For property owners, percentage rent adds a variable income stream tied to tenant success, though it requires sales reporting and audit rights to verify tenant-submitted figures accurately reflect actual performance.
Further reading: Real Estate Investment Strategies for Accredited Investors in 2026
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