A commercial property has a tenant operating a restaurant, and the lease includes a 'percentage rent' clause. What does this clause typically mean for the tenant's rental obligations?

Question: A commercial property has a tenant operating a restaurant, and the lease includes a 'percentage rent' clause. What does this clause typically mean for the tenant's rental obligations?

Answer options: ✅ The tenant pays a fixed minimum rent, plus a percentage of their gross sales above a certain threshold.

• The tenant's rent is calculated solely as a percentage of their net profit from the business.
• The tenant pays a very high fixed rent, with no additional percentage component.
• The tenant's rent fluctuates based on the landlord's overall operating expenses for the property.

Correct answer: The tenant pays a fixed minimum rent, plus a percentage of their gross sales above a certain threshold.

Explanation: A percentage rent clause in a commercial lease, common in retail, typically means the tenant pays a base or minimum rent, plus an additional percentage of their gross sales that exceed a pre-determined breakpoint. This arrangement aligns the landlord's income with the tenant's sales success.