Last updated: September 27, 2026
How does percentage rent work?
A percentage-rent clause links part of a tenant's rent to sales as defined in the lease. In a common structure, the tenant pays base rent plus an agreed percentage of sales above a breakpoint. The percentage, reporting period, sales definition and breakpoint must come from the agreement.
Base rent, rate and breakpoint
Base rent is the stated rent payable under the agreement. Percentage rent is an additional sales-based calculation when the clause applies. A breakpoint is the sales threshold above which that calculation begins. There is no single percentage or breakpoint that should be assumed for every retail lease.
For the illustrative structure in this article:
Additional percentage rent = rate × max(0, defined sales − breakpoint). Total rent in the example = base rent + additional percentage rent.
Express the rate as a decimal when calculating, and use sales, base rent and breakpoint amounts for the same period. Actual agreements may use different structures, reconciliation rules or other charges; the formula is not a substitute for reading the clause.
Worked example: a negotiated breakpoint
A separately agreed threshold is sometimes called an artificial breakpoint. Use the negotiated threshold in the lease rather than replacing it with the natural-breakpoint calculation.
Assume monthly base rent of $5,000, a 7% rate and a negotiated monthly sales breakpoint of $150,000. The numbers are illustrative, not market averages.
At $80,000 of defined monthly sales, sales are below the breakpoint. Additional percentage rent is zero; total rent in this example is $5,000 .
At $250,000 of defined monthly sales, excess sales are $100,000. Additional rent is $100,000 × 0.07 = $7,000 ; total rent is $12,000 .
Natural breakpoint formula: base rent ÷ percentage rate
For this structure, the natural breakpoint is base rent divided by the percentage rate. With $5,000 monthly base rent and a 7% rate:
$5,000 ÷ 0.07 = $71,428.57 , rounded to cents.
This differs from the $150,000 negotiated breakpoint above. Do not substitute the natural breakpoint when the lease specifies another threshold. An annual base-rent figure produces an annual natural breakpoint; do not compare it directly with one month's sales.
A second example: seasonal sales
Assume monthly base rent of $4,500, an 8.5% rate, a $60,000 monthly breakpoint and $100,000 in defined monthly sales.
Excess sales: $100,000 − $60,000 = $40,000 .
Additional rent: $40,000 × 0.085 = $3,400 .
Total rent in the example: $4,500 + $3,400 = $7,900 .
The additional $3,400 is approximately 75.6% of the $4,500 base rent. That percentage describes the increase over base rent, not the agreed percentage-rent rate. The natural breakpoint for these inputs would be $4,500 ÷ 0.085 = $52,941.18, which again differs from the negotiated $60,000 threshold.
A lower base rent or a higher breakpoint does not automatically make one proposal cheaper. Model the same plausible sales levels and time periods for each proposal, including other occupancy charges, before comparing them.
What counts as sales?
The lease should define the sales included in the calculation and any exclusions. Review the treatment of returns, refunds, discounts, sales taxes, online orders, delivery sales, gift cards and credit transactions. Also confirm when a sale is recognized and which location receives credit. Do not assume an exclusion or reporting rule applies merely because it is common in another agreement.
Reporting, reconciliation and review
Confirm reporting dates, record-retention and audit rights, confidentiality obligations, and any annual reconciliation of interim payments. A seasonal business should understand whether the threshold operates monthly, annually or on another basis. Review the clause and its examples with the advisers responsible for the lease.
When marketing a leased property, distinguish contractual base rent, historical percentage rent and forecasts. Identify their periods and sources rather than presenting variable rent as guaranteed income. Use CREOP's marketing software to organize the reviewed lease information, financials and supporting documents, or contact the CREOP team to discuss your workflow.