Question

You have entered into a Retail lease that has a fixed Base Rent of $10/SF on your 5,000 SF space. Your annual sales are $400/SF. Your Lease also requires Percentage Rent of 5% based on a Natural Breakpoint. How much is your first year's Base Rent, Percentage Rent and then the total Rent?  

Answer 1

Answer :-

First Year's base rent = $ 50,000

First Year's percentage rent = $ 50,000

Total Rent = $ 100,000

Calculation :-

Base Rent = 5000 SF * $ 10/ SF = $ 50,000

Percentage rent based on natural breakpoint = The natural breakpoint is the point where the base rent equals the percentage rent. To calculate it, we divide the base rent by the percentage of percentage rent.

In this case: $50,000 ÷ 5% = $1,000,000. When sales exceed $1,000,000 it must pay the landlord 5% of every amount it brings in as sales.

And sales = 5000 SF * $ 400/SF

= $ 2,000,000

So percentage rent will be

= ($ 2,000,000 - $ 1,000,000) * 5%

=$ 1,000,000 * 5%

= $ 50,000

And Total rent = Base rent + percentage rent

= $ 50,000 + $ 50,000 = $ 100,000