California Real Estate Practice Exam

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What type of lease involves a base rent and a variable payment based on sales?

Fixed lease
Gross lease
Net lease
Percentage lease

The correct answer is: Percentage lease

A percentage lease is a type of lease commonly used in retail and commercial real estate, where the tenant pays a base rent plus a variable amount that is calculated as a percentage of their sales revenue. This arrangement aligns the landlord's and tenant's interests; as the tenant's sales increase, the landlord benefits from a higher rental payment. This type of lease is particularly advantageous for businesses that may experience fluctuations in revenue, as it can provide flexibility in terms of total rental costs. In contrast, fixed leases require tenants to pay a set amount without any variability based on performance, while gross leases bundle all costs into a single payment from the tenant, and net leases typically involve additional expenses for property operating costs or taxes being passed on to the tenant. Each of these types serves different business models and risk profiles, but a percentage lease specifically targets the relationship between rent and sales performance.