A retail tenant pays $25 per square foot base rent plus 5% of gross sales over $500,000 annually. If the tenant's gross sales are $800,000 and they lease 2,000 square feet, what is their total annual rent?

Q: What is the correct answer to: A retail tenant pays $25 per square foot base rent plus 5% of gross sales over $500,000 annually. If the tenant's gross sales are $800,000 and they lease 2,000 square feet, what is their total annual rent?

The correct answer is $65,000. Option C correctly calculates both components of the rent structure. Base rent equals 2,000 sq ft × $25 = $50,000. Since gross sales ($800,000) exceed the breakpoint ($500,000), percentage rent applies to the excess: ($800,000 - $500,000) × 5% = $15,000. Total annual rent is $50,000 + $15,000 = $65,000. This demonstrates proper understanding of percentage rent calculations where the percentage only applies to sales above the specified threshold, not total sales.

Q: What background knowledge is needed for this Commercial Real Estate question?

Percentage rent is a commercial lease structure combining base rent with additional rent based on tenant sales performance. Base rent provides guaranteed income to landlords, while percentage rent allows participation in tenant success. The breakpoint is the sales threshold above which percentage rent applies. Only sales exceeding this amount are subject to the percentage calculation. This structure is common in retail leases, particularly shopping centers, where landlord property maintenance and marketing efforts can directly impact tenant sales. Commercial agents must understand these calculations for lease negotiations and financial analysis.

Q: What is a good way to remember the answer to this Commercial Real Estate question?

Remember 'BASE-PLUS': Base rent PLUS percentage of sales OVER the breakpoint. Think of it like a bonus system - you get your base salary (base rent) PLUS a commission (percentage rent) only on sales ABOVE your quota (breakpoint). The percentage doesn't apply to ALL sales, just the excess. When you see percentage rent questions, immediately identify: 1) BASE rent (sq ft × rate), 2) PLUS percentage rent (only sales OVER breakpoint × percentage). Add them together for total rent.

Q: What exam tip applies to this Commercial Real Estate question?

Always identify the three components: base rent, breakpoint amount, and percentage rate. Calculate base rent first, then determine if sales exceed breakpoint. Apply percentage only to excess sales above breakpoint, never to total sales.

Q: How does this Commercial Real Estate concept apply in real world practice?

A commercial agent represents a restaurant tenant negotiating a lease in a shopping plaza. The landlord proposes $30/sq ft base rent plus 6% of gross sales over $400,000 annually. The agent must calculate potential rent scenarios based on projected sales to advise the client. If the restaurant projects $600,000 in annual sales for a 1,500 sq ft space, total rent would be $45,000 base plus $12,000 percentage rent, totaling $57,000 annually. This calculation helps the tenant evaluate lease affordability and negotiate terms.

Question

Commercial Real EstateLease CalculationsMEDIUM

A retail tenant pays $25 per square foot base rent plus 5% of gross sales over $500,000 annually. If the tenant's gross sales are $800,000 and they lease 2,000 square feet, what is their total annual rent?

Answer Options

A

$50,000

B

$55,000

C

$65,000

D

$90,000