Percentage rent is used in retail leases where the landlord has bargaining power to demand a share of the tenant’s economic gains. Demand for retail space may be high or a landlord’s specific location may be particularly attractive such that the tenant is willing to pay not only a fixed amount of rent but a share of its gross revenue. These types of leases require a sophisticated understanding of the underlying economics of tenant’s business. These leases also require very careful drafting. How is gross revenue defined? Is there a minimum amount or a maximum amount? How are these numbers verified? And what are all the related protections for the landlord or the tenant? This program will provide you with a practical guide to negotiating and drafting percentage leases.
• Circumstances where percentage rent is commonly seen
• Economics of percentage rent – landlord and tenant perspectives
• Defining key terms – “gross sales,” exclusions, percent of rent
• Determining thresholds – minimum rent, sliding scales
• Financial reporting and audit rights
• Important related provisions – non-competition, continuous use, payment terms
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