What is required from a tenant when percentage rent is implemented?

When percentage rent is implemented, the tenant is required to pay a percentage of their sales volume. This arrangement typically occurs in retail leases where the landlord charges a base rent and additionally allows for the tenant to pay a portion of their gross or net sales, once they surpass a certain sales threshold.

This method aligns the interests of the landlord and tenant, as the landlord benefits from the tenant's success through increased rent when sales are high, while the tenant has the incentive to promote their business to maximize sales. This type of rent structure is particularly common in shopping centers or malls where traffic and sales volume can vary significantly. The percentage rent helps create a more flexible financial arrangement that can adapt to the performance of the business.