One of the primary decisions that a new California company needs to make is where it will do business. In the retail industry, this often involves setting up shop in a shopping center or mall. When it comes to leases in this world, property owners often want percentage leases from their tenants.
As the name indicates, the property owner wants a percentage of a business's gross sales on top of the base rental payment. Small retail business owners should not assume that they will not be subject to such a lease because they do not bring in the volume of sales of larger stores, such as those referred to as "anchor" stores in the shopping center or mall. A landlord may still want a percentage from its smaller retailers as well.
Fortunately, the percentage most often is only taken after a tenant brings in over a certain amount. It does not include all of its sales. Perhaps a property owner would request, say, 5 percent of anything over $10,000 in a month for a smaller tenant. For this reason, a potential landlord will more than likely request an estimate of gross monthly sales in order to determine the point at which the tenant would be responsible for paying a percentage of those receipts.
No new retail business owner should assume that this point is not negotiable. When it comes to commercial leases, nearly everything may be negotiated. It may be possible to increase the threshold at which a percentage is required. It may also be possible to decrease the percentage the property owner wants. The only way to know is to enter into negotiations, but not before thoroughly understanding how the retail market here in California works, which will probably require some experienced assistance.