In which rental environment is a percentage lease commonly used?

A percentage lease is commonly used in the retail rental environment. This type of lease structure allows landlords to receive a base rent plus a percentage of the tenant's sales revenue, which can be particularly advantageous in retail settings where sales can vary significantly.

In retail leasing, this arrangement incentivizes both the landlord and the tenant: landlords benefit from potentially higher earnings when the tenant's sales are strong, while tenants may enjoy lower base rents that are manageable, especially during slower sales periods. This alignment of interests helps both parties maintain a fruitful business relationship, as the success of the retailer can directly impact the income of the landlord.

While percentage leases are rarer in residential and industrial contexts, they are somewhat applicable in some commercial real estate scenarios, typically tailored to specific situations or arrangements. However, the predominant occupancy type where percentage leases are most effectively utilized is clearly within the retail industry.