Percentage rent

Definition

Rent that rises with sales above a floor, common in retail leases.

Why It Matters

It changes what growing the business is worth to you, because a share of every dollar above the breakpoint goes to the landlord rather than to earnings. That makes it a valuation input and not a lease footnote: a buyer modeling 20% growth on a percentage-rent lease is modeling a rent rise they may not have priced. Find the breakpoint, check whether it is stated or natural, and run the earnings forecast with the rent it implies.

In numbers: A lease at $4,000 a month plus 6% of sales above a $1.2M breakpoint costs $48,000 a year at $1.2M of sales and $66,000 at $1.5M, which is $18,000 straight off SDE.