Certified Residential Appraiser Practice Exam

What feature does a percentage lease typically include?

1. A fixed monthly rent only

2. A base rent plus liability for property taxes

3. A base rent plus a percentage of sales

4. A monthly rent adjusted for inflation

The correct answer is: A base rent plus a percentage of sales

A percentage lease is typically characterized by its combination of a base rent and an additional amount calculated as a percentage of the tenant’s sales revenue. This type of lease structure aligns the interests of both the landlord and the tenant, as the landlord benefits from the tenant's success when business is booming, while the tenant enjoys a lower base rent when sales are slow. The inclusion of a base rent ensures a minimum guaranteed amount for the landlord, while the percentage of sales provides potential for increased revenue as the tenant's business grows. This arrangement is common in retail environments, where the landlord's income is directly linked to the performance of the tenant's business. Other options lack the unique dual nature of a percentage lease. For instance, a fixed monthly rent only would not account for the tenant’s sales performance. Similarly, liability for property taxes without a component related to sales fails to capture the essence of a percentage lease structure. Lastly, a monthly rent adjusted for inflation does not involve a percentage aspect at all, further distinguishing it from the characteristics of a percentage lease.