What is percentage rent?

Percentage rent refers to a leasing arrangement where a tenant pays a base rent plus a percentage of their sales revenue to the landlord. This structure is particularly common in retail leases, where a tenant is likely to generate variable income based on their sales. When sales are high, the amount paid in rent will also increase, aligning the interests of the tenant and landlord. This arrangement is beneficial for both parties, as it allows tenants to manage their rent obligations based on their revenue performance while giving landlords a chance to earn more as tenants succeed.

The options that suggest a flat fee, fixed annual rent, or charges for maintenance services do not accurately capture the dynamic nature of percentage rent, which is inherently linked to the tenant's sales performance.