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Identify Percentage Rent Issues that May Impact the Assignment and Subleasing of Retail Space

By Kim Sigler

Shopping center leases often contain percentage rent clauses that provide for the ability of the landlord to share in the sales of a tenant over a specific sales threshold while providing the tenant with a lower total rent when sales do not meet the sales threshold. A typical percentage rent provision obligates the tenant to pay a percentage (ie, the percentage rent rate) of the amount of gross sales generated by and from the tenant's business operated at the leased premises, that exceed the threshold amount, ie, a “sales” base or “breakpoint,” as additional rent.

The terms of the lease may require that the payments be made by the tenant to the landlord on a monthly or quarterly basis ' which may require estimated or escrow payments similar to common area maintenance payments based upon an estimate and reconciliation after the end of the applicable lease year ' or on a yearly basis. Although the specific terms of the percentage rent provision may vary, based on the bargaining position of the parties, this lease provision is usually tailored to the original tenant's initial use of the leased premises based upon the type of business to be conducted, the anticipated sales volume, the rent, and the term of the lease.

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