In a percentage lease, rent is commonly structured as:
Correct Answer
B) A base rent plus a percentage of the tenant's sales above a breakpoint
Why this is correct: A percentage lease is a standard retail arrangement where the tenant pays a guaranteed minimum base rent plus an additional percentage of their gross sales that exceed a predetermined threshold, known as the natural or artificial breakpoint. This structure aligns the landlord's income with the tenant's business success. Why the other choices are wrong: 'A fixed amount adjusted annually by a published index' describes an index lease, not a percentage lease. 'Whatever the tenant's net profit permits each quarter' is incorrect because rent is based on gross sales, not net profit, and is contractually defined, not discretionary. 'A single payment covering the entire lease term in advance' describes a prepaid lease, which is unrelated to sales performance. Exam tip: Remember the key components of a percentage lease: base rent, percentage rate, and a defined breakpoint for sales.
Why This Is the Correct Answer
Why this is correct: A percentage lease is a standard retail arrangement where the tenant pays a guaranteed minimum base rent plus an additional percentage of their gross sales that exceed a predetermined threshold, known as the natural or artificial breakpoint. This structure aligns the landlord's income with the tenant's business success. Why the other choices are wrong: 'A fixed amount adjusted annually by a published index' describes an index lease, not a percentage lease. 'Whatever the tenant's net profit permits each quarter' is incorrect because rent is based on gross sales, not net profit, and is contractually defined, not discretionary. 'A single payment covering the entire lease term in advance' describes a prepaid lease, which is unrelated to sales performance. Exam tip: Remember the key components of a percentage lease: base rent, percentage rate, and a defined breakpoint for sales.
More Income Approach Questions
In a DCF, what is the reversion?
Potential gross income differs from effective gross income in that PGI assumes:
The reversion in a discounted cash flow model represents:
Building A (new, credit tenant, 20-year lease) and Building B (older, month-to-month tenants) sell the same week. Their cap rates should differ how?
An overall rate extracted from a sale whose NOI excluded reserves, applied to a subject NOI that includes them, will:
Replacement reserves cover which kind of expenditure?
What is the primary distinction, for appraisal purposes, between 'vacancy loss' and 'collection loss'?
An appraiser is analyzing a mixed-use property with retail and office components. The retail segment has a potential gross income of $180,000 with a market vacancy of 8%. The office segment has a potential gross income of $120,000 with a market vacancy of 12%. What is the overall effective gross income for the property?
The mortgage constant represents:
Applying a GRM of 164 to a subject renting at $2,650 monthly indicates a value of:
People Also Study
Real Estate Market
13.6% of exam
Property Description
11.8% of exam
Land or Site Valuation
4.5% of exam
Sales Comparison Approach
16.4% of exam
Cost Approach
13.6% of exam