You are negotiating for space in a mall that has mall sales of $550.00 per squar

Question

You are negotiating for space in a mall that has mall sales of $550.00 per square foot. The lease requires percentage rent and with a threshold of 8%. Your projected sales in this space are $500,000.00 per year.   Your actual sales in year 2 are $2,300,000.00.

What is the minimum rent for the space per year?

What is the additional rent to be paid to the landlord in the second lease year?

How much additional rent is owed for the following percentage rent structure?

                  Sales               $0.00 - $1,000,000.00 = 8%

                              $1,000,001.00 - $1,500,000.00 = 7.5%

                              $1,500,001.00 - $2,000,000.00 = 7.0%

                              $2,000,001.00 - $3,000,000.00 = 6.5%

                              Above $3,000,001.00                 = 5.0%

Which is the best scenario for the landlord?

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Explanation / Answer

Mall has sales = $ 550 per sq ft.

Projected sales = $ 500,000

let the base rent be $x per year.

Percentage rent = x/0.08. Hence percentage rent would be 8% of annual sales above $(x/0.08)

a) Hence the minimum rent paid is the base rent x

b) Breakpoint= 0.08*500,000 = $ 40000

Percentage rent is applied on annual sales above =$ 540,000

Let percentage rent = y%

Additional rent = y*(2,300,000-540,000)/100 = (y *1760,000)/100 = $(17600*y)

c)Additional rent owed for second year for the given percentage rent structure = 6.5 * 17600 = $114,400

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