within the premises. Usually, percentage rent is based on a percentage of "gross sales" in excess of the base rent payable. This creates a "sharing" of the benefits of a successful project and tenancy. Due to this sharing concept, the lease should contain an anti- partnership clause, disclaiming any partnership between landlord and tenant.
Definition of Gross Sales: The definition of gross sales should be inclusive,
but provide for reasonable exclusions. (See Forms 8 and 9.)
Monthly Sales Reports: Landlords should require that the tenant provide
monthly sales reports in all leases providing for percentage rent.
Books/Audits: The tenant's books and records of revenue should be kept on
the leased premises or in another location in the general location of the premises so
that landlord may review them to ensure proper reporting of sales. This clause should give the landlord the right to inspect and/or complete audits of the tenant's sales records.
Radius Clause: In competitive areas the landlord may want to prohibit the
tenant from engaging in a similar or competitive business within a certain radius of the leased premises. If the tenant violates this clause, the landlord should, by an appropriate provision, include the sales from that business as sales from the leased
premises for purposes of determining percentage rent. (See Form 10.)
Maximization of Rent. Leases containing percentage rent should require the tenant to continuously operate its business in such a manner so as to maximize its sales at the premises.
Fixed: In leases for a term in excess of three (3) years, the tenant's rental
charges can be adjusted by fixed steps (i.e., increases in rent) to account for anticipated inflationary changes.
CPI: The tenant's rent adjustment can also be directly tied to the Consumer
Price Index ("CPI"). (See Forms 11 and 12.)
Percentage Rent: Tenants paying percentage rent, especially low percentage producers, may also be tied to either fixed or CPI rent adjustments.
OPERATING EXPENSES AS ADDITIONAL RENT
Method of Reimbursement: