What is Percentage Rent?
Additional rent paid by a tenant as a percentage of gross sales above a specified breakpoint.
Definition
Percentage rent is a lease provision that requires the tenant to pay additional rent equal to a percentage of their gross sales above a specified threshold called the natural breakpoint. The breakpoint is typically calculated by dividing the annual base rent by the percentage rate. For example, with $90,000 annual base rent and a 6% percentage rent rate, the natural breakpoint is $1,500,000 in sales. The tenant pays no additional rent until sales exceed $1.5M, then pays 6% on every dollar above that threshold. Percentage rent aligns landlord and tenant interests — the landlord benefits from the tenant's success, and the tenant's additional rent obligation scales with their ability to pay. Common percentage rent rates range from 4-8% depending on the retail category. In site selection, percentage rent clauses increase the importance of accurate sales projections, since a high-performing location may trigger significant additional rent obligations.
Example
A retailer with a 5% percentage rent clause and a $1.2M natural breakpoint generates $1.5M in sales, paying an additional $15,000 (5% × $300,000 above breakpoint) in percentage rent.
Related Terms
Learn more about percentage rent in practice
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