Percentage Rent

How the breakpoint works

The natural breakpoint is the sales level at which the percentage would exactly reproduce base rent: annual base rent divided by the percentage rate. As an illustration, a lease with $100,000 of annual base rent and a 5% rate has a natural breakpoint of $2,000,000 — the tenant pays 5% of gross sales above that level. Parties can instead negotiate an artificial breakpoint: set lower, it gives the landlord upside sooner; set higher, it protects the tenant until sales clear a bigger hurdle.

What counts as gross sales

The definition of gross sales is the most negotiated part of a percentage rent clause. Returns and exchanges, employee sales, gift card breakage, and — increasingly — online orders fulfilled or returned through the store are handled differently from lease to lease. Reporting obligations follow the definition: periodic sales statements, an annual certified statement, and landlord audit rights over the tenant's books.

What to watch for

• Whether the breakpoint adjusts when base rent changes — after an escalation, an expansion, or a partial-year period.
• Radius clauses that restrict the tenant from opening a nearby competing store that would siphon reportable sales away from the premises.
• Interaction with co-tenancy and kick-out provisions, which often key off the same reported sales figures.

In your documents

Percentage rent terms rarely sit in one paragraph: the rate may live in the basic lease information, the breakpoint in a rider, and the gross sales definition in an exhibit — amended twice since. Asking Sevrel for a tenant's percentage rent terms is designed to return an answer linked to the retrieved lease language, part of the broader lease analysis workflow — verify the operative clause against the lease before billing off it.