Consider ‘Gross Sales’ Carve-Outs When Negotiating Retail Lease

Consider ‘Gross Sales’ Carve-Outs When Negotiating Retail Lease



Your retail lease may require you to pay two types of rent: minimum fixed rent and a percentage of the “gross sales” you generate from the property above a specific dollar amount (called the “breakpoint”). The economic heart of the arrangement is the scope of the “gross sales” definition—that is, the revenues it does and doesn’t include. Of course, you’ll want to define “gross sales” as narrowly as possible; your owner, naturally, will seek the exact opposite. While every situation is different, be aware of the types of revenues that any tenant should at least try to exclude from “gross sales.” This includes:

  • Internet Sales
  • Catalog & Other Sales Placed by Customers Off-Site
  • Gift Certificates
  • Taxes
  • Interest and Finance Charges

For 11 more types of revenue to exclude and the justification for gross sales carve-outs, see “Minimize Percentage Rent by Excluding 15 Things from ‘Gross Sales,’” available to subscribers here.

 

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