What is a percentage lease based on?

A percentage lease is structured to base a portion of the rent on the tenant's gross sales. This arrangement is commonly used in retail settings, where the landlord aims to align their earnings with the tenant's performance. By tying the rent to sales, landlords can encourage tenants to boost their sales, knowing that increased profits will also benefit the property owner. This type of lease often has a base rent component and then adds a percentage of sales once they exceed a certain threshold, creating a shared incentive for both the tenant and the landlord.

In contrast, options related to the property size, market value, or the lease duration do not accurately describe the essence of a percentage lease, as they do not directly correlate to the economic performance of the tenant's business, which is the pivotal factor in this leasing model.