A percentage lease is commonly used in which type of property?

A percentage lease is commonly utilized in shopping centers because it aligns the interests of landlords and tenants through a shared revenue model. In this type of lease, the tenant pays a base rent along with a percentage of their gross sales to the landlord. This arrangement incentivizes landlords to support their tenants’ success, as the total rent paid increases with higher sales.

This lease format is particularly suitable for retail environments where sales volumes can vary significantly, allowing for more flexible financial arrangements compared to standard leases. The structure helps attract tenants by reducing their fixed costs when sales are low while allowing landlords to benefit during peak sales periods.

While percentage leases can be employed in various contexts, they are most closely associated with retail properties, making shopping centers the most common application. Office buildings, residential apartments, and industrial warehouses typically do not use percentage leases, relying instead on more straightforward fixed rent agreements that do not fluctuate based on tenant performance.