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Landlords and tenants may sign percentage lease agreements

On Behalf of | Jan 11, 2022 | Real Estate | 0 comments

Florida commercial real estate owners may offer tenants flexibility in negotiating lease agreements. New businesses, for example, may find rentals that allow them to end leases should their startups fail.

As noted by PYMNTS.com, property owners with vacancies could also attract new tenants by offering a percentage lease for the first year. Tenants could pay landlords a percentage of their sales revenue. When the first year ends, agreements may revert to fixed-rent arrangements.

Arranging benefits for both tenants and landlords

Retail stores typically fit the ideal tenant profile for a percentage lease. According to Millionacres, new stores inside busy shopping malls may benefit from the property’s normal foot traffic. Customers visiting established retail stores may step into a new store out of curiosity.

Property owners could help increase their tenants’ sales volume by bringing in new renters that offer related products or services. Selecting complimentary retail tenants could in turn boost rental income from percentage leases.

Negotiating percentage of revenue agreements

Lease agreements could outline a base rent amount plus a percentage of sales profit. The monthly dollar amount of a tenant’s base rent may reflect the square footage of the leased space. After negotiating a base rental price, tenants and property owners may discuss their break-even point.

The break-even point could reflect a flat price a tenant generates in sales revenue with no obligation to pay a percentage to the landlord. Income over this amount becomes subject to a percentage the tenant then pays the property owner.

Percentage lease agreements may attract retail tenants willing to pay part of their store’s revenue to property owners. When tenants and landlords negotiate contract terms favorable to both parties, a percentage lease may become a mutually beneficial arrangement.

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