What type of lease involves the tenant paying both a base rent and a percentage of their business profits?

A percentage lease is a specific type of lease commonly used in commercial real estate, particularly for retail locations. In this arrangement, the tenant agrees to pay a base rent to the landlord, but in addition to that base rent, they also pay a percentage of their gross business profits. This structure aligns the interests of both the landlord and the tenant: the landlord benefits from the tenant's success through profit-sharing, while the tenant can keep their base rent lower during times of less business activity.

This arrangement is particularly advantageous in the retail sector, where the volume of sales can fluctuate significantly. By linking the lease payments to the tenant’s sales performance, it can provide a more flexible financial arrangement that can adapt to changing business circumstances. Owners of shopping centers or malls often favor percentage leases because they create a vested interest in the success of the businesses they host, encouraging them to attract more customers.

In contrast, the other types of leases involve different arrangements for payment structures. For instance, a gross lease typically includes all expenses in a single payment and does not involve payments based on profit. A net lease often shifts property-related expenses onto the tenant but does not include a percentage of profits. A fixed lease usually sets a rental amount that does not change and also does not