Free tool
Percentage rent breakpoint calculator
Derive the natural breakpoint from base rent and rate, override it with a negotiated figure, and compute what is owed at true-up.
Percentage rent
Illustrative only. Check the lease for exclusions from gross sales and the reporting period the breakpoint applies to.
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When percentage rent actually gets paid
Most retail tenants never cross their breakpoint, which is by design. The breakpoint is usually set so that percentage rent is upside rather than baseline. A tenant paying percentage rent every year is a tenant whose base rent was probably set too low.
Because it is upside, percentage rent is easy to under-collect. It depends on sales reports arriving on time and someone remembering to compute the true-up. That combination is exactly why it goes uncollected in spreadsheet-run portfolios.
Questions
How do I calculate a natural breakpoint?
Divide annual base rent by the percentage rate. At $120,000 of base rent and a 6% rate, the natural breakpoint is $2,000,000, the sales level at which 6% of sales exactly equals base rent. The tenant pays the percentage only on sales above that figure.
What is an artificial breakpoint?
Any breakpoint the parties negotiate instead of the natural one. It can sit above or below the natural figure, and it overrides the natural calculation entirely. A below-natural breakpoint means percentage rent starts sooner, which favors the landlord.
Should gross sales include everything?
Usually not. Most retail leases exclude returns, sales taxes, employee discounts, gift card issuances, and sometimes online orders fulfilled elsewhere. Check the gross sales definition in the lease before entering a figure. It is the most frequently disputed term in a percentage rent clause.
How does the annual true-up work?
Total the reported sales for the year, subtract the breakpoint, multiply by the rate, then subtract any percentage rent already billed during the year. The remainder is the true-up charge.
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