Glossary

Percentage Rent

Updated June 2026

Percentage rent is additional rent a tenant owes once gross sales at a location pass a set threshold. Below that threshold you pay only base rent; above it, you pay base rent plus a negotiated percentage — often 4 to 8 percent — of the sales over the threshold. It is common in retail and restaurant leases, where the landlord wants to share in a location's upside.

The breakpoint

The threshold is called the breakpoint, and there are two kinds:

• Natural breakpoint. The base rent divided by the percentage rate. At 200,000 dollars of annual base rent and a 5 percent rate, the natural breakpoint is 4,000,000 dollars in sales — the point where the percentage of sales would equal the base rent.
• Artificial breakpoint. A fixed number negotiated directly in the lease, set above or below the natural figure rather than derived from it.

The math itself is light here; the deeper walkthrough lives in How to Calculate Percentage Rent.

The deadlines it creates

Percentage rent is not a one-time clause — it is an ongoing pair of obligations that repeat every period:

• Sales reporting. The lease requires you to submit gross sales on a schedule, often monthly or annually. Late or missing reports can trigger landlord audit rights or default provisions.
• The calculation and payment. Once sales clear the breakpoint, the percentage is owed. Getting the breakpoint or the included-sales definition wrong means overpaying or underpaying, both of which surface in a landlord audit.

Reported sales also feed other clauses. A kick-out clause, for instance, often uses the same sales figures to decide whether the landlord (or you) can recapture the space.

For a multi-location operator, the difficulty is volume: every location with a percentage rent clause has its own breakpoint, its own reporting schedule, and its own definition of countable sales. Tracking each as a recurring lease obligation with a deadline and an owner is what keeps reports on time and payments correct. Nova Foundry tracks percentage rent breakpoints and reporting deadlines across every location, so nothing is calculated late or paid by guess.