Percentage Rent
Additional rent a retail tenant pays as a percentage of gross sales above a breakpoint, trued up annually against sales actually reported.
Also called: overage rent, sales-based rent
Percentage rent is additional rent calculated as a percentage of a retail tenant’s gross sales above an agreed breakpoint. It aligns the landlord’s return with the tenant’s performance, which is why it is near-universal in shopping centers and rare everywhere else.
The calculation
percentage rent = (gross sales - breakpoint) x percentage rateWith $2,450,000 in sales, a $2,000,000 breakpoint, and a 6% rate:
($2,450,000 - $2,000,000) x 0.06 = $27,000If percentage rent was billed during the year, the annual true-up nets what was already collected against the total owed.
Typical rates by category
Rates vary inversely with margin. Low-margin, high-volume categories carry low percentages:
| Category | Typical range |
|---|---|
| Grocery and drug | 1-2% |
| Apparel | 5-7% |
| Restaurants | 6-8% |
| Jewelry and specialty | 8-10% |
These are conventions rather than rules, and anchor tenants negotiate substantially lower rates than inline tenants.
The operational problem
Percentage rent depends on data the landlord does not control and cannot observe. Getting sales reported on time, in a consistent format, and attributable to the right period is most of the work — and it is why percentage rent goes uncollected in portfolios run on spreadsheets.
Practical requirements:
- A defined reporting cadence, usually monthly or quarterly
- A stated definition of gross sales with exclusions listed
- An audit right, with who pays for the audit specified
- A record of what was reported, when, and by whom
That last point matters more than it sounds. When a figure is later amended or disputed, the submission history is the evidence.
See how percentage rent software collects sales and generates the true-up.