Certified Residential Appraiser Practice Exam

In which type of lease is rental based on a tenant's gross sales?

1. Fixed Lease

2. Percentage Lease

3. Flat Lease

4. Net Lease

The correct answer is: Percentage Lease

A percentage lease is structured so that the rental payment is directly linked to the tenant's gross sales. This type of lease is commonly used in retail environments where the landlord and tenant share the risk and reward associated with the business's sales performance. The key characteristic of a percentage lease is that it provides a minimum base rent plus a percentage of sales over a specific threshold. This aligns the interests of both parties, as the landlord benefits from the tenant's success and higher sales, while the tenant enjoys potentially lower fixed costs during slower sales periods. In contrast, a fixed lease establishes a set rental payment that does not fluctuate based on the tenant's sales, ensuring a predictable income stream for the landlord but lacking the flexibility that a percentage lease offers. Meanwhile, a flat lease also indicates a constant payment over time without variation based on sales. Lastly, a net lease typically involves the tenant paying not only rent but also additional costs like property taxes and maintenance, unrelated to sales performance. Thus, the percentage lease is particularly advantageous in situations where sales figures vary significantly, allowing the landlord to benefit from increased sales while providing financial relief during lower performance periods for the tenant.