What is percentage rent, and does it transfer with the business?

A buyer reading a lease summary often sees only the base rent figure and misses that the real occupancy cost is variable — common in shopping centres, malls, and some standalone retail or restaurant premises where the landlord shares in a tenant’s success.

How the calculation actually works

Typically, a percentage of gross sales above a specified breakpoint is owed as additional rent, reported and reconciled periodically, often annually, against sales records the tenant is contractually required to provide the landlord. Base rent alone can materially understate what a business at this location actually pays once sales are strong.

It changes what a buyer is really comparing

A business quoting a low base rent on a percentage-rent lease can look cheaper than a comparable business paying a flat rent elsewhere, until the buyer works out the total occupancy cost at the sales level the business is actually running at. Comparing listings on base rent alone is comparing the wrong number entirely.

The landlord gets to audit the numbers behind it

Because percentage rent depends on accurate sales reporting, these leases typically give the landlord audit rights over the tenant’s records. A buyer should ask whether the seller’s reporting has ever been challenged, since an inherited dispute over historical percentage rent owing is a liability that can follow the assignment.

Factor it into how you value the business, not just the lease

Because percentage rent scales with revenue, it behaves more like a variable cost than a fixed expense when modelling the business going forward. A buyer projecting growth should model the rent growing with it, rather than treating current rent as a flat number that will hold regardless of how the business performs under new ownership.