Lease Structure
Percentage Rent Lease
Base rent plus a percentage of tenant sales above a threshold
A Percentage Rent Lease combines a fixed base rent with an additional percentage of the tenant's gross sales above a defined breakpoint. Common in regional malls, anchor retail, and some shopping centers. The structure aligns landlord and tenant incentives — both benefit when sales grow. Typically layered on top of an NNN or modified gross structure.
Term
10-20 years with options
Rent Bumps
Base rent + percentage of sales over breakpoint (typically 5-8% of gross above $X)
Cap Rate
Varies by property type and location
Tenants
Traditional retail, entertainment, mall tenants
Who Pays What?
| Expense | Tenant | Landlord |
|---|---|---|
| Base Rent | — | |
| Percentage of Sales Over Threshold | — | |
| Property Taxes (typically NNN) | — | |
| Insurance (typically NNN) | — | |
| Maintenance (typically NNN) | — | |
| CAM Charges | — |
Pros
- +Inflation-protected via revenue-linked rent growth
- +Aligns landlord/tenant incentives
- +Meaningful upside in high-performing locations
- +Historical structure well-understood in retail
Cons
- −Requires tenant sales reporting and audits
- −Rent volatility tied to retail performance
- −Complex to administer vs. flat rent
- −Tenants may under-report sales (requires audits)
Common Use Cases
How It Compares
Percentage rent is less common today outside of enclosed malls and anchor tenants. Most single-tenant NNN leases use flat rent with fixed escalations rather than percentage rent. However, the structure remains valuable in retail centers with strong anchor tenants.
Investor Perspective
Percentage rent can provide inflation hedge and upside participation, but administration is complex. Best for investors with property management infrastructure. Track tenant sales carefully — percentage rent has legal cost (audit provisions) if under-reporting is suspected.
Other Lease Types
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