A percentage lease is a legal term that describes a lease where a tenant pays rent to the landlord plus a percentage of any revenue for doing business on the rented property. Percentage leases are more financially viable in the long run for both parties, but you should be careful before you enter into one.
At Saracens Solicitors, we have many years of experience in commercial leases and we are here to help you achieve the best deal possible. If you are interested in a percentage lease, but you would like to find out more about how it works, your commercial lease solicitor in London will come to your assistance. You can rest assured that we will do our best to protect your interests and achieve the most rewarding commercial lease for your business.
What is a percentage lease?
A business owner who opts for a percentage lease has two responsibilities – pay minimum rent to the landlord and offer a percentage of the monthly (or annual depending on the type of agreement) gross revenue made on the property. This arrangement can be attractive for both tenants and landlords. A business owner can lower fixed cost through a percentage lease, whereas the landlord has the potential to earn more compared to a standard lease. More importantly, this agreement gives initiative to both parties, since the expansion of business and greater sales will lead to a mutually beneficial situation. However, there are some things business owners should be aware of before opting for this type of lease, and your commercial lease solicitor in London will explain them thoroughly.
Negotiating a percentage
Once the landlord and the tenant start negotiating, it is important to set a ‘breakpoint’ – that is the level of sales where percentage leases start to apply. This breakpoint is calculated in combination with the base rent. For instance, if a landlord agrees to a low percentage lease, then it makes sense for the breakpoint to be low as well. A business owner, on the other hand, will negotiate for a low base rent and a high breakpoint.
Your commercial lease solicitor in London will help you reach a balanced and beneficial agreement with an option to renegotiate the breakpoint.