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Retail
June 25, 2025
11 min read

Percentage Rent: Complete Calculation & Optimization Guide

Everything you need to know about percentage rent clauses, breakpoints, and maximizing retail lease income.

Revenue Opportunity

Properly structured percentage rent can increase retail lease revenue by 15-35%.

Percentage rent allows landlords to participate in tenant success while providing flexibility. Poor structuring leads to disputes and lost revenue.

Basic Formula

Percentage Rent = (Gross Sales - Breakpoint) × Rate
Only applies when sales exceed breakpoint

Components:

  • • Base Rent: Minimum payment
  • • Breakpoint: Sales threshold
  • • Rate: % of excess sales
  • • Gross Sales: Total revenue

Example:

  • • Base: $20K/month
  • • Breakpoint: $400K/year
  • • Rate: 6%
  • • Sales: $500K
  • • Overage: $6,000

Natural Breakpoint

Base Rent ÷ Percentage Rate

Example: $240K ÷ 6% = $4M breakpoint

Artificial Breakpoint

Set below natural breakpoint

Generates percentage rent sooner

Industry Rates

Apparel:

  • • Clothing: 6-8%
  • • Shoes: 5-7%
  • • Jewelry: 8-12%
  • • Accessories: 7-10%

Food & Beverage:

  • • Restaurants: 6-8%
  • • Fast Food: 5-7%
  • • Grocery: 1-3%
  • • Bars: 4-6%

Services:

  • • Personal Services: 8-12%
  • • Electronics: 3-5%
  • • Books: 6-8%
  • • Home Goods: 4-6%

Gross Sales Definition

Include:

  • • All merchandise sales
  • • Service revenues
  • • Online sales (if fulfilled from premises)
  • • Gift card redemptions
  • • Delivery charges
  • • Completed layaway payments

Exclude:

  • • Sales/use taxes
  • • Returns and refunds
  • • Employee discounts
  • • Damaged merchandise
  • • Gift card sales (before redemption)
  • • B2B transactions

Reporting Requirements

Monthly (Due 15th):

  • • Gross sales summary
  • • Category breakdown
  • • Excluded sales detail
  • • YTD totals
  • • Prior year comparison

Annual Certification:

  • • CPA-prepared statements
  • • Complete sales breakdown
  • • Percentage rent calculation
  • • Payment reconciliation
  • • Supporting documentation

Case Study: 28% Revenue Boost

Shopping Center:

  • • 45 retail tenants
  • • Inconsistent reporting
  • • Poor compliance
  • • Only 60% paying overage

Problems:

  • • Vague sales definitions
  • • No audit enforcement
  • • Manual processes

Solutions:

  • • Standardized clauses
  • • Automated POS reporting
  • • Regular audits
  • • Renegotiated breakpoints
Results:
Collection: 60% → 85%
Annual overage: $340K → $435K
+$95K (28%)

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