Section 6 Rent

• Library: Real Estate Leasing and Landlord-Tenant Actions and Remedies 2011

The rent payable by a tenant is typically one of the more significant terms of the lease for both the landlord and the tenant. It might be difficult to dispute rent payment obligations when rent is a fixed dollar amount payable on a periodic basis (usually monthly) in advance. But rent payable under a lease is seldom that simple. Although a vast majority of leases include fixed periodic rent payments, the tenant’s rental obligations often include other payments or obligations, including obligations for taxes, insurance, and maintenance costs or maintenance obligations. These rent obligations can include, for example:

percentage rent; rent escalator clauses; reimbursements for taxes and insurance;

obligations to repair or maintain some or all of the property; and common area maintenance charges.

If additional rent based on sales is to be paid by the tenant, the factors employed to determine the amount of percentage rent should be defined. These factors might include, for example, the annual or other period used for the computation of percentage rent, the transactions to be included in the term “sales,” and items to be excluded or deducted. If credit or credit card sales are included, the lease should specify whether credit sales are to be included at the sales price or only to the extent of the amount collected. If the latter, the landlord will participate in the credit losses of the tenant. The landlord is frequently willing to permit this arrangement because it may encourage the tenant to engage in a credit business and ultimately increase sales.

Tenants may want to exclude certain items such as credit sales or sales of certain types of goods or services. It is common to permit deductions or exclusions for goods returned or exchanged or for adjustments made as the result of customer complaints. The tenant should be required to maintain appropriate evidence of sales (customarily for a two- or three-year period) and to furnish the landlord audited statements of sales, together with sales tax returns for the period of time covered by the audited statement, contemporaneously with the payment of percentage rent. If percentage rent is paid more frequently than on an annual basis, the tenant’s statements of sales (other than the annual statement) customarily are not audited, but certified to be correct by the tenant, with the annual percentage rent subject to adjustment at the end of the annual period upon submission of the audited statement.

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