In a percentage lease, how is the rent typically determined?

In a percentage lease, the rent is typically determined as a percentage of gross sales generated by the tenant's business. This type of lease is commonly used in retail settings, where landlords want to ensure that their income is aligned with the performance of the tenant's business. By tying the rent to gross sales, landlords encourage tenants to maximize their sales, which benefits both parties.

This arrangement is particularly appealing for retail spaces in high-traffic areas, as it gives tenants a lower base rent with the potential for increased payments as their sales grow. It allows landlords to share in the success of the tenant’s business, establishing a partnership dynamic where both parties are invested in the success of the commercial property.

Other methods for determining rent, such as a flat fee or a percentage of net profit, do not align as closely with the tenant's revenue performance and can create different incentives that may not encourage business growth or profitability in the same way.