In a lease agreement where the tenant pays a percentage of sales, what type of lease is commonly used?

A lease agreement where the tenant pays a percentage of sales is commonly referred to as a percentage lease. This type of lease is particularly prevalent in retail environments, where the landlord allows the tenant to pay a lower base rent coupled with a percentage of their sales. This arrangement can be beneficial for both parties; for the tenant, it can reduce upfront costs and align rent expenses with income, while for the landlord, it can result in higher overall earnings if the tenant’s sales increase.

In contrast, a net lease typically requires the tenant to pay a base rent along with additional expenses such as property taxes, insurance, and maintenance costs. A gross lease includes all operating expenses in the rent payment, making it simpler for tenants as they do not have to deal with additional variable costs. A modified gross lease is a hybrid, where some expenses are included in the rent while others are billed separately. Understanding the specific characteristics of each type of lease is important for addressing the needs and expectations of both landlords and tenants in property agreements.