A retail tenant's lease includes a base rent of $25 per square foot plus 6% of gross sales exceeding $500,000 annually. If the tenant occupies 2,000 square feet and generates $800,000 in annual sales, what is the total annual rent?

Q: What is the correct answer to: A retail tenant's lease includes a base rent of $25 per square foot plus 6% of gross sales exceeding $500,000 annually. If the tenant occupies 2,000 square feet and generates $800,000 in annual sales, what is the total annual rent?

The correct answer is $68,000. Option B correctly calculates the total annual rent by combining both lease components. Base rent equals 2,000 sq ft × $25/sq ft = $50,000. Since annual sales of $800,000 exceed the $500,000 threshold, percentage rent applies to the excess: ($800,000 - $500,000) × 6% = $18,000. Total annual rent is $50,000 + $18,000 = $68,000. This demonstrates proper application of percentage lease calculations commonly found in retail commercial leases.

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

Percentage leases are common in retail commercial real estate, combining base rent with percentage rent on sales above a breakpoint. Base rent provides guaranteed minimum income while percentage rent allows landlords to benefit from tenant success. The breakpoint (threshold) protects tenants from paying percentage rent until achieving sufficient sales volume. These leases require careful calculation of both components and understanding of gross sales definitions. Provincial commercial tenancy legislation may govern certain aspects of these arrangements, though specific percentage lease terms are typically negotiated between parties.

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

Remember 'BASE + EXCESS = TOTAL': Base rent (square footage × rate) + Excess percentage (sales above threshold × percentage) = Total rent. Think of it like a restaurant bill: you pay the BASE menu price plus a TIP (percentage) only on the EXCESS service above standard. When you see percentage lease questions, immediately identify the BASE rent calculation, check if sales EXCEED the threshold, calculate percentage on EXCESS only, then add BASE + EXCESS for TOTAL rent.

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

Always break percentage lease calculations into two steps: calculate base rent first, then check if sales exceed the threshold before applying percentage rent to only the excess amount.

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

A shopping center leases space to a clothing retailer with base rent of $30/sq ft plus 5% of sales over $600,000. During lease negotiations, the commercial agent must explain how this structure protects both parties: the landlord receives guaranteed minimum rent while participating in the tenant's success, and the tenant only pays percentage rent after achieving substantial sales volume, making the location more viable for their business model.

Question

Commercial Real EstateLease CalculationsMEDIUM

A retail tenant's lease includes a base rent of $25 per square foot plus 6% of gross sales exceeding $500,000 annually. If the tenant occupies 2,000 square feet and generates $800,000 in annual sales, what is the total annual rent?

Answer Options

A

$50,000

B

$68,000

C

$98,000

D

$125,000