What it means
In a base-plus-percentage arrangement, the tenant owes the minimum rent even when sales are weak, and extra rent begins only when defined sales pass the breakpoint. This gives the landlord a share of stronger trading, but it does not guarantee the tenant lower rent than a fixed-only offer.
Compare the whole lease, including service charges and any operating obligations, because a low base rent may come with an early breakpoint or a high percentage rate. Model expected, weak and strong sales rather than judging the base rent alone.
The lease should define gross sales carefully, so check treatment of tax collected from customers, returns, refunds, gift-card redemptions, online orders, third-party delivery sales and sales from other premises. These items can shift the calculation even if both parties agree on the percentage.
A natural breakpoint equals base rent divided by the percentage rate for the same period. With $25,000 monthly base rent and a 7% rate, it is roughly $357,143 of monthly sales, although a separately negotiated, or artificial, breakpoint need not equal that figure.
Match reporting periods to the calculation, since monthly estimates may be reconciled against annual sales while another lease may calculate each month independently, so the same annual sales spread differently across months can produce different rent. Tenants may have to keep sales records, submit reports and allow audit under the contract.
Agree on what the landlord may inspect and how disputes or late adjustments are handled, and note that a business using several sales channels needs a consistent way to trace transactions to the leased premises. For landlords, variable rent can reward a successful location while leaving revenue more exposed to tenant performance.
For tenants, base rent sets the floor, and percentage rent can rise even if rising sales carry higher labour or delivery costs, because sales are not profit. This structure appears in retail markets in many places, including malls.
Local leasing rules, tax treatment and enforceability differ, so legal and accounting review should address the particular property and jurisdiction before signing.
In practice
Real-world examples.
Example
A clothing store pays base rent of $20,000 a month plus 6% of sales above $350,000. In a month with $450,000 of sales it pays $20,000 + 6% x $100,000 = $26,000.
Example
A cafe pays the higher of $15,000 a month or 10% of monthly sales. Sales of $200,000 give 10% = $20,000, so the percentage figure applies, while sales of $120,000 leave the $15,000 minimum in force.
Example
A landlord audits a tenant's sales records after noticing reported sales look unusually low. The lease audit clause lets it inspect the records, and any underreported sales are reconciled against the rent paid.
Formula
Calculation
For a base-plus-breakpoint lease in the same period:
Percentage rent = max(0, defined sales - breakpoint) x percentage rate
Total rent = base rent + percentage rent, excluding any other charges
Worked example. A fictional shop owes $25,000 monthly base rent, plus 7% of defined monthly sales above $400,000. At sales of $520,000, the extra rent is ($520,000 - $400,000) x 7% = $8,400, so total rent is $33,400 before other charges. At $350,000 sales, extra rent is zero but base rent remains $25,000.
For the natural breakpoint, $25,000 / 7% = $357,143 of monthly sales; at the artificial $400,000 breakpoint the landlord waits for $42,857 more sales before sharing in the upside. Do not use this formula for a lease that charges the higher of base rent or a percentage of all sales; read that contract's formula separately.Case study
Seen in the real world.
This illustrative and entirely fictional example follows Spice Bowl, an invented restaurant considering a mall location. The landlord offers either fixed monthly rent of $40,000 or base rent of $25,000 plus 8% of defined monthly sales above $300,000. At projected sales of $320,000, the variable choice would cost $26,600 before other charges. The owners also model a strong month at $600,000. Percentage rent would be $24,000, bringing total rent to $49,000, higher than the fixed option.
They compare expected profit after staffing and food costs rather than assuming more sales always makes the variable deal better. Before signing, they clarify whether delivery-platform sales belong in the store's gross sales and how refunds are counted. They also check audit rights and whether monthly amounts are reconciled annually. The choice depends on these definitions and the forecast, not the word "percentage" alone.
Watch out
Common mistakes.
- Comparing only base rent and ignoring the breakpoint, rate and other charges.
- Leaving online sales, returns or taxes unclear in the sales definition.
- Using one month's sales forecast without modelling weak and strong months.
Questions
People also ask.
What is a breakpoint in a percentage lease?
The defined sales threshold after which extra percentage rent begins in a base-plus-breakpoint lease.
Who uses percentage leases?
It is common in retail, especially shopping centres, but actual use and terms vary by market and property.
What is turnover rent?
It links rent to sales. Some forms have a fixed minimum and a breakpoint; others use a percentage of all defined sales.
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