Percentage Rent Calculator

Percentage rent is an arrangement where tenants pay a base rent plus a percentage of their gross sales. This incentivizes landlords to support tenants’ business success.

This type of lease is commonly used in retail settings, especially for high-volume businesses like those in shopping centers, but can also apply to smaller businesses benefiting from high foot traffic.

Tenants may enjoy lower base rents and flexibility during slower sales months, allowing them to pay less when business is down, which can help with cash flow management.

Tenants should research market rates, consider the stability of their sales, and negotiate for favorable terms like lower breakpoints or caps on rent increases to balance affordability with potential growth.

Percentage rent is calculated as a percentage of a tenant's gross sales above a predetermined breakpoint, so the two most critical variables are the breakpoint threshold and the percentage rate negotiated in the lease. The natural breakpoint is calculated by dividing the base rent by the percentage rate, but leases sometimes include an artificial breakpoint that's set higher or lower, which significantly affects how much additional rent is owed. You also need to clearly define what's included in gross sales — exclusions like online sales, returns, employee discounts, and sales tax are commonly negotiated out and must be tracked separately to avoid overpaying.