Percentage Rent is a rent payment structure found in retail leases where the tenant pays the rent as a percentage of the sales in addition to the basic rent.
The majority of the retail leases are tipple net leases (NNN), where the tenant also pays for the CAM (common area maintenance costs) charges / Additional Operating expense.
The example below will explain how Percentage Rent is calculated.
Step 1 - Determine Gross Sales of the tenant: add all the monthly sales for the prior year
Example: Assume Gross sales for 2022 is $1,000,000
STEP 2 - Calculate percentage rent
Ex: 3% x $1,000,000 = $30,000
Subtract: a) Min rent paid by the tenant, b) percentage rent paid already, c) CAM charges, d) taxes and e) insurance
a) Min rent paid in 2022 is $18,000
b) Percentage rent (prepaid) is $2,000
c) CAM charges is $5,000
d) Taxes is $2,000
e) Insurance is $500
TOTAL RENT DUE to the landlord is:
$30,000 - ($18,000+$2,000+$5,000+$2,000+$500)= $2,500
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