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The percentage rent commercial lease

As a landlord, you have numerous options regarding the types of leases you may offer tenants. If you offer retail space in a California shopping center, you may want to consider the percentage rent commercial lease. This type of lease may be more landlord friendly than other options.

A percentage rate lease allows you to charge a tenant a fixed amount of rent, called the base rent, along with a percentage of the tenant's monthly gross sales over a minimum threshold. This type of lease could be particularly advantageous with an anchor tenant whose monthly sales could be substantial. A common percentage for these types of leases is seven percent.

More than likely, your prospective tenants will want to negotiate the point at which they begin to pay you a percentage of their gross monthly sales, along with the base rent. Therefore, it's important for you to determine the minimum amounts you are willing to accept. There is often a delicate balance between obtaining the best terms possible for you as a landlord versus pricing yourself out of a tenant. You may also need to be willing to choose a different lease structure based on the type of tenant that wishes to rent space from you.

If you own a shopping center, a mall or some other retail establishment, a percentage rent commercial lease may work best for you. However, you should be prepared for prospective tenants to want to change the terms you initially propose. In addition, you may want to be sure that any lease you execute with a tenant meets all of the applicable California laws in order to help that it is enforceable should something go wrong.

Source: thebalance.com, "Average Percentage Rents Charged in Commercial Leases", Lahle Wolfe, Accessed on April 2, 2018

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