Retail Leases: How to Calculate Percentage Rent

Retail Leases: How to Calculate Percentage Rent
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

Let's assume:

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

Good luck!
eProp Property Experts
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