Encyclopedia
Percentage rent
Rent based on a share of the tenant's sales, usually above a threshold.
For example: A retailer in a mall pays percentage rent above a sales breakpoint. (Illustration only, not a real deal.)
This is a general industry term with no single official definition. Your lease or contract wording controls.
Example only, not a real client. Say you open a clothing store in a busy retail centre. Your lease has a base rent plus a percentage of sales above a set level. In a strong year you pay more; in a slow year you pay only base rent. The structure shares risk with the landlord.
What I’d tell a friend
If your lease includes percentage rent, understand the sales threshold, what counts as sales and what reporting you must provide.
Why it matters to you
In a good year the landlord shares your upside. What counts as sales, what you have to report and whether the landlord can audit you decide what you actually pay, so read those terms closely.
How to use it in your deal
Tenants should negotiate the definition of gross sales hardest: exclude taxes, returns, staff discounts, gift card sales until redeemed, and online orders shipped from elsewhere. Ask for a breakpoint that reflects your basic rent, and model the cost at slow, normal and great sales levels.
Landlords should set clear reporting dates and a right to audit, with the tenant paying for the audit if sales were under-reported by more than a small margin. Buyers of retail properties should check whether percentage rent is actually being paid and whether the income is steady or a one-off from a good year. Lenders often discount percentage rent in underwriting, so don't count on it for financing.
Mistakes I see
Vague gross sales wording that sweeps in online sales. Missing monthly or annual reporting deadlines. Landlords never checking the reports. Buyers valuing a peak year of percentage rent as if it were permanent.
In BC and Vancouver
No BC statute regulates percentage rent; the lease controls. Disputes are handled under contract law, and BC courts read these clauses closely.
Official sources: CanLII (court decisions) · Commercial Tenancy Act (BC Laws)
How it works
Percentage rent is an extra rent based on a share of your sales above a set level, called the breakpoint. It is most common in larger retail centres.
It ties the landlord’s income partly to how well your business does, which can make the base rent lower.
What to check
Look at how sales are defined, what is excluded, such as returns and online sales, and how often you must report.
Ask whether the landlord can audit your records and what happens if the audit finds a difference.
Questions to ask before you sign
- What's the breakpoint, and how was it set?
- What counts as gross sales?
- Are online sales included?
- How and when do I report?
- What triggers an audit, and who pays for it?
Keep reading
Related terms: Occupancy cost, Anchor tenant
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General information for British Columbia only. It isn’t legal, tax, accounting or financial advice, laws and rates change, and reading it doesn’t make you my client. Any numbers or scenarios are hypothetical. Check the linked official source and talk to a lawyer, accountant or other qualified professional before you act or sign anything. See the terms and disclaimer.