Percentage rent & breakeven.
Retail and restaurant leases often add percentage rent — a slice of sales above a breakeven point. This finds your natural breakeven, the percentage rent due at your sales level, total rent, and whether your occupancy cost is healthy.
Percentage rent is negotiable. So is the breakpoint.
Send me the deal on the table and your projected sales. I'll tell you whether the natural breakpoint has been calculated honestly and what a retailer should be pushing for.
Estimates are for planning only and use simplified assumptions — not tax, legal, or investment advice. Verify with your lender, CPA, and a full broker analysis before acting.
The breakpoint is where retail deals are won
Percentage rent looks like a landlord participating in your success. In practice the whole negotiation lives in one number: the breakpoint at which the percentage starts.
A natural breakpoint is base rent divided by the percentage rate — $120,000 of base rent at 6% gives a $2,000,000 breakpoint, above which you pay 6% of sales. An artificial breakpoint is any number the landlord writes in instead, and it is almost always lower. Accepting an artificial breakpoint set 20% below natural means paying percentage rent on sales that were supposed to be yours.
Ask for the natural breakpoint by default, and if the landlord wants an artificial one, ask what you are getting in exchange.
What else belongs in the clause
Define gross sales precisely, and exclude what should be excluded: sales tax, returns and refunds, employee discounts, gift-card sales until redeemed, delivery-platform fees, and online sales fulfilled elsewhere. That last one matters more every year and older lease forms do not address it.
Then the reporting mechanics. Annual reconciliation rather than monthly is easier to administer and smooths seasonality. Cap the landlord's audit rights to a defined period, and make sure a co-tenancy failure or a landlord-caused closure suspends percentage rent as well as reducing base rent.
Across the tri-county records the median retail building dates to 1972, so many of these deals sit in older centers where co-tenancy and parking conditions genuinely move sales — which is exactly why those protections belong in the same clause.
Common questions
What is a natural breakpoint?
Base rent divided by the percentage rate. At $120,000 of base rent and a 6% rate the natural breakpoint is $2,000,000 of sales. Below it you pay base rent only; above it you pay the percentage on the excess.
Should I accept an artificial breakpoint?
Only for something in return. An artificial breakpoint is set below natural, so percentage rent starts earlier and you pay more at the same sales level. If a landlord wants one, it should buy you a lower base rent, a larger allowance or a concession elsewhere.
What should be excluded from gross sales?
Sales tax, returns and refunds, employee discounts, gift cards until redeemed, third-party delivery fees and online orders fulfilled from elsewhere. Older lease forms rarely address online and delivery properly, so it needs to be written in.
What is the natural breakeven in a percentage-rent lease?
The natural breakeven is the sales level where percentage rent begins, calculated as annual base rent ÷ percentage rate. For example, $120,000 base rent at a 6% rate has a natural breakeven of $2,000,000 in sales — you pay percentage rent only on sales above that point.
How is percentage rent calculated?
Under the natural breakeven method, percentage rent = percentage rate × (actual sales − breakeven sales), and only when sales exceed the breakeven. Total rent is base rent plus percentage rent. This calculator computes all of it and expresses total rent as a percent of sales.
What is a healthy occupancy cost for retail?
Occupancy cost — total rent as a percentage of sales — typically runs about 6–10% for healthy retail and restaurant concepts. Above roughly 12–15%, rent starts to squeeze margins. The right target varies by category, so use it as a guardrail and negotiate the breakeven and rate accordingly.
Tools: space · lease cost · occupancy cost · all calculators · Justin Crow, South Florida tenant rep