What is a Pure Percentage Lease?

A Pure Percentage Lease is characterized by the rental payments being directly tied to the tenant's gross sales. This type of lease structure aligns the landlord’s income with the tenant's business performance, meaning the rent varies with how well the tenant makes sales. This arrangement can be particularly beneficial in retail situations, where sales can fluctuate widely.

In a typical Pure Percentage Lease, the landlord might charge a base rent that is lower than market rates, offset by a percentage of the tenant's sales above a certain threshold. As the tenant’s sales increase, so does the rent, which can provide significant incentives for both parties to work together to maximize sales.

In contrast, a lease that specifies a fixed monthly fee does not incorporate the tenant's sales performance and is thus not classified as a Pure Percentage Lease. Similarly, leases that include maintenance costs or have variable term lengths do not define Pure Percentage Leases either, as these characteristics pertain to other types of leasing agreements. Understanding the dynamics of a Pure Percentage Lease helps tenants and landlords navigate their responsibilities and benefits effectively.