What is a key feature of a percentage lease?

A key feature of a percentage lease is that it typically includes a base monthly rental price, along with an additional charge that is based on a percentage of the tenant's gross sales revenue. This type of lease arrangement is often used in retail settings where the landlord can benefit from the tenant's success—if the tenant’s business performs well, the landlord also sees an increase in rental income without having to raise the base rent.

This structure aligns the interests of both parties; as the tenant's sales increase, so does the rent, providing an incentive for the landlord to help the tenant succeed on the property. Furthermore, percentage leases are particularly common in shopping centers and high-traffic retail locations where sales volume is an important factor.

In contrast, a percentage lease is distinct from other options, such as a flat monthly rent (which does not change regardless of sales performance), charges based solely on square footage (which typically lacks the performance-based component), and security deposits that do not form a part of the regular rental payment structure but rather serve as a financial safeguard for the landlord against potential damages or unpaid rent. Thus, the inclusion of a base rental fee along with a percentage of gross sales is what fundamentally defines a percentage lease.