What is a key feature of a percentage lease?

A percentage lease is characterized by rent that is directly tied to a tenant's sales revenue. This leasing arrangement is often used in retail contexts, where landlords and tenants can mutually benefit from the success of the business. The landlord typically receives a base rent, complemented by a percentage of the tenant's gross sales, which incentivizes the landlord to support the tenant's business as it grows.

This leasing structure is advantageous because it can align the interests of both parties; as the tenant's sales increase, so do the landlord's rental income. This model contrasts with flat leases with fixed monthly payments or those where rates are adjusted according to the leaseholder's expenses, which do not take the tenant's business performance into account. Additionally, a fixed-term lease without changes does not incorporate any element of performance-based rental adjustments that a percentage lease provides.