Natural and artificial breakpoints
A natural breakpoint is commonly modeled by dividing annual base rent by the percentage-rent rate. An artificial breakpoint is a negotiated sales threshold entered directly.
- Natural breakpoint equals annual base rent divided by the percentage rate
- Artificial breakpoint is the negotiated sales threshold
- Percentage rent equals sales above the breakpoint multiplied by the rate
- Lease definitions control exclusions, reporting periods, and sales categories
Estimate total occupancy rent
Add estimated percentage rent to annual base rent to see the rent component before other lease expenses.
- Use gross sales as defined in the lease
- Match annual, quarterly, or monthly reporting periods correctly
- Account for exclusions, returns, online sales, and audit provisions
- NNN expenses may be additional
Key takeaways
- A natural breakpoint can be calculated by dividing annual base rent by the percentage-rent rate.
- Percentage rent is commonly modeled on defined sales above the applicable breakpoint.
- The lease definition of gross sales and breakpoint terms controls the actual obligation.