What does a percentage lease base the amount of rent on?

In a percentage lease, the amount of rent is predominantly based on the sales generated in the leased space. This type of lease agreement is commonly used in retail settings where parts of the rent fluctuate according to the tenant's performance. The landlord typically charges a lower base rent along with a percentage of the tenant's gross sales that exceed a pre-defined threshold. This arrangement benefits both parties: the landlord gains potential revenue growth aligned with the tenant's sales success, while the tenant may enjoy lower fixed costs during quieter sales periods.

This structure contrasts with other forms of lease agreements where rent might be determined by the property's size, condition, or the duration of the lease. These alternative factors do not take into account the actual financial performance of the tenant, which is the key aspect of a percentage lease that relates directly to the sales generated in the space.