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 modelling 20% growth on a percentage-rent lease is modelling 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 $600,000 breakpoint costs $48,000 at $600k of sales and $60,000 at $800k, which is $12,000 straight off SDE.