Opening a retail establishment here in Orange County may entice some entrepreneurs. When they go to find a space for their new ventures, they often look to rent instead of buy. During the review of a commercial lease for a retail space, prospective tenants often check for provisions regarding paying a percentage of their sales to the property owner.
The larger stores in high-traffic malls and shopping centers often pay a percentage of their sales to their landlords. Getting a prime spot in such an environment may also mean that smaller businesses will do the same. Of course, property owners do not take a percentage of all of a store’s sales each months. Instead, they only take a percentage of the sales over a certain amount.
When perusing a lease for retail space, potential tenants look for the “breakpoint” in it. This is the amount at which the landlord expects the tenant to pay a percentage. For instance, if the breakpoint is $25,000, anything over that amount will be subject to the percentage payment. The payment is derived from the gross receipts.
There may not be quite as much room to negotiate the percentage, but there may be a greater ability to negotiate the breakpoint. The goal for retail tenants is to pay the least amount of rent, which means understanding all of the extra cost above the base rent that a property owner expects tenants to pay. Since the negotiation of a commercial lease is common, Orange County entrepreneurs may have the opportunity to keep the breakpoint high and the percentage of sales low as possible, which would lower the amount of rent.