What does overage rent involve?

Overage rent is characterized as the percentage rent that a tenant pays above a predetermined guaranteed minimum rent. This type of rent arrangement is commonly found in commercial leases, particularly those involving retail spaces. In these agreements, tenants agree to pay a base rent as well as additional rent that is calculated based on a percentage of their sales revenue, typically only when those sales exceed a specific threshold.

This structure allows landlords to benefit from the success of the tenant's business, as the landlord receives a portion of the sales beyond the base amount guaranteed in the lease. Understanding this mechanism is crucial for appraisers, as it impacts the valuation of leased properties and the projected income streams based on the potential sales performance of the tenant.