What is the primary function of a percentage lease in commercial real estate?

A percentage lease in commercial real estate is primarily designed to base rent on a tenant's sales performance. This type of lease is common in retail settings, where the landlord and tenant agree on a base rent, and a percentage of the tenant's gross sales is added as additional rent.

This arrangement benefits both parties: landlords can earn more when tenants succeed, while tenants might enjoy lower base rents, especially in the early stages of their business when sales may be lower. Additionally, since the rent is directly tied to sales, it aligns the interests of the landlord with the performance of the tenant's business, providing an incentive for the landlord to help the tenant succeed.

In contrast, maintaining the property, reducing rent costs for tenants, and guaranteeing tenant occupancy do not directly relate to the special structure and intent of a percentage lease. These aspects may be part of overall leasing strategies or agreements in real estate but are not the primary function of a percentage lease, which focuses specifically on linking rent obligations to sales performance.