California Real Estate Broker ExaminationContractsMedium
A property manager is negotiating a new lease agreement for a commercial tenant. The tenant requests a lease where they pay a fixed base rent plus an additional percentage of their gross sales above a certain threshold. What type of lease is the tenant requesting?
- AGround lease
- BNet lease
- CPercentage lease
- DGross lease
Show answer & explanationAnswer & explanation
Correct answer: C. Percentage lease
A percentage lease is a common commercial lease type where the tenant pays a base rent plus a percentage of their gross sales. This allows the landlord to participate in the tenant's success.
Why the other options are wrong
- A. A ground lease involves leasing the land only, typically for a long term, where the tenant builds on the land.
- B. A net lease requires the tenant to pay base rent plus some or all property expenses (taxes, insurance, maintenance).
- D. A gross lease requires the tenant to pay a fixed rent, and the landlord pays most or all property expenses.
Percentage Lease
A commercial lease where the tenant pays a base rent plus a percentage of their gross sales.
- Common in retail properties
- Landlord shares in tenant's success
- Often includes a 'breakpoint' for percentage calculation
Memory trick: Percentage lease: 'Your sales percentage boosts my rent percentage.'