Fixed Rent versus Percentage Rent

If you rent Office Space, you will generally charge (or pay) a fixed rent per square foot of space rented. But if you rent Retail space, the landlord may want to share in the success of the tenant and charge a percentage rent based on the sales increases of the tenant.


This does not endorse either method. Most smaller tenants refuse to rent where landlords do this. That might be short sighted. Read on. Larger tenants generally pay percentage of their sales as the cost of doing business and being in a location where their sales actually increase because of the location. Also, the landlord has a stake in the success of the tenant, encouraging the landlord to create a good tenant mix and keep the location attractive & up to date.

Fixed Rent means the rate is fixed per square foot for the duration of the lease. Your total useable space times the rate per square foot equals the annual rent. Divide the annual rent by twelve months equals monthly rent, before CAM & Sales tax.

Percentage rent will include a base rent. If the base rent is $144,000 per year, with a 4% rate. then the Breakpoint is $3,600,000 in sales. Base Rent $144,000 divided by Percentage Rate 4% equals Breakpoint. What this means is, the tenant will pay the base rate until their sales exceed the Breakpoint. At sales above the BP, the tenant will pay 4% of the amount over. Sales $3,800,000 - BP $3,600,000 = Excess Sales $200,000 X 4% = $8,000 additional rent for that year. The percentage is the same as if the sales had been 4% of the larger sales. $3,800,000 X 4% = $152,000 - Base Rent $144,000 = $8,000.

So remember, Percentage rents can be a good for both the vendor & landlord.