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Sometimes in a Letter of Intent (LOI) you will see a part/heading that contains the words: PERCENTAGE RENT. I think it is important that everyone know what things really mean and how it can impact getting the best deal.

PERCENTAGE RENT is defined as a percentage of the tenant’s total annual sales paid in addition to fixed rent. This additional rent is normally paid after a predetermined sales level has been achieved. The percentage factor is then applied to all sales over the present level (breakpoint).

Usually the landlord’s representative will put percentage rent in an initial proposal, but some retailers do put it in the initial LOI for various reasons. Percentage Rent is usually applicable to restaurants and food operators more than dry goods and service oriented retailers.

In general, I would say to negotiate percentage rent out of your proposal unless it is really going to help you on your fixed/based rent. As always, evaluate your business and consult your broker before responding to a deal with percentage rent.

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