Detailed lease for store space within a shopping center, with an option for rent as a percentage of gross sales.
Puerto Rico Shopping Center Lease Agreement - percentage rent option
State:
Multi-State
Control #:
US-808LT
Format:
Word;
Rich Text
Instant download
Description
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How to fill out Shopping Center Lease Agreement - Percentage Rent Option?
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FAQ
A percentage lease is a type of lease where the tenant pays a base rent plus a percentage of any revenue earned while doing business on the rental premises.
Percentage leases are commonly executed in retail mall outlets. This type of lease agreement is most common for businesses with notoriously large sales volumes, but even a small business that wants to set up shop in a mallto take advantage of the high volume of foot trafficmay be subject to it.
Once you know your expenses you'll be better able to set a rent price to help make a reasonable monthly profit. In terms of profitability, one guideline to use is the 2% rule of thumb. It reasons that if your rent is 2% of the purchase price, you are more likely to generate positive cash flow.
A common method for determining percentage rent is to use a natural breakpoint. A natural breakpoint is calculated by dividing the base rent by an agreed percentage. The percentage rent payable by a tenant will then be equal to this percentage multiplied by the amount by which gross sales exceeds the breakpoint.
The formula is (Gross Sales Artificial Break Point x % = Percentage Rent). If tenant's Gross Sales are $3,000,000, then the tenant would pay landlord 6% of $1,750,000 ($3,000,000 (Gross Sales) $1,250,000 (Artificial Breakpoint) = $1,750,000 x 6% = $105,000 (Percentage Rent for Year 1).
Commercial tenants should be able to spend 5% to 10% of their gross sales per foot on rent. Your gross sales divided by the location's square footage will give you sales per square foot. For example, you estimate your business will make $300,000 per year in total sales, and you are looking at a 1,500 square foot space.
Percentage leases can also benefit the property owner because they have the ability to choose the type of businesses and companies that are placed within the retail space. Accordingly, strategic leasing can attract more customers to the space, which gives the landlord the opportunity to negotiate a percentage of sales.
Percent rent is normally considered an additional rent term. For example, if a tenant has a base rent of $1,000 per month, and a percentage rent of 5% of income on an annualized basis, then the natural breakpoint is (12 x 1,000) / 5% = $240,000.
Commercial tenants should be able to spend 5% to 10% of their gross sales per foot on rent. Your gross sales divided by the location's square footage will give you sales per square foot. For example, you estimate your business will make $300,000 per year in total sales, and you are looking at a 1,500 square foot space.