What does a percentage lease agreement cost? If you own commercial property and want to rent your space to a business, you may ask this question. Let’s explore this question and review some general information about percentage lease agreements and how they work.
How Much Does a Percentage Lease Agreement Cost?
A percentage lease agreement is a commercial lease between a commercial property owner ( landlord ) and the business owner who rents the property ( tenant ). Under a percentage lease agreement, the tenant pays a base rent plus a percentage of their business revenue.
Percentage lease agreements will often have a lower monthly base rent, which appeals to business owners who tend to pay a lot in operating costs. The property owner is guaranteed the monthly base rate but has the potential to earn more on top of that if the tenant’s business is thriving.
The percentage lease will negotiate what percent of monthly or annual gross sales will be due in addition to the rent. Many of these agreements also include a sales breakpoint that must be reached first before any percentage of revenue is due.
Percentage lease agreements benefit both parties because the landlord is vested in their tenant’s business success. This allows both parties to work together towards a common goal and can often deter common issues landlords and tenants face.
Suppose a property owner wants to execute a percentage lease with a tenant. In that case, it is common for them to hire a lawyer to draft the rental agreement. An experienced real estate lawyer will know what terms and conditions must be included in the percentage lease agreement to protect the landlord’s and the tenant’s interests.
Based on ContractsCounsel’s marketplace data, the average cost of a percentage lease agreement is $507.22 across all states.
What is Included in a Percentage Lease Agreement?
A percentage lease agreement should include all the terms and conditions of a regular lease agreement plus the terms and conditions for the percentage part.
The terms in the lease agreement will vary based on the property type, the business, and the needs of both parties. Percentage lease agreements are negotiable but must include the following basic information:
- Party information. Names, business names, and contact information of the landlord and the tenant.
- Property address. The address of the commercial property.
- Property description. The property description includes square footage and any areas included in the lease, like parking or shared restrooms.
- Property use. The use clause dictates how a tenant can use the property. It will include information about the tenant’s business and manner of operation.
- Lease term. The duration of the lease, including starting and end dates, and whether there is a renewal option.
- Base rent. The fixed monthly rent that the tenant will pay the landlord each month.
- Breakpoint. The breakpoint is the revenue the business needs to earn before the landlord receives a percentage of the rent. For example, suppose the breakpoint is $100,000. In that case, the landlord will not receive a portion of the revenue unless the tenant’s business clears $100,000. This price point will be negotiated.
- Percentage rent. The percentage of the tenant's revenue will pay the landlord once the breakpoint has been exceeded. This number is also negotiated between the parties.
- Signatures. The agreement needs to be signed by both parties to be legally binding, and many states will also require a notary certification.
Percentage Lease Agreement Projects
Percentage Lease Agreement Drafting
Percentage lease agreements can be complicated and often require much negotiating. Therefore, it is always recommended that a landlord hires an experienced l estate attorney to draft their percentage lease agreement.
A lawyer will ensure that the agreement contains all necessary terms, articles, and conditions to protect both parties.
Before beginning the draft for a percentage lease agreement, a lawyer will meet with the property owner to go over the specifics of the property and discuss their rental goals.
Percentage Lease Agreement Review
Commercial lease agreements, especially percentage lease agreements, are long-term commitments that could affect a tenant’s business. For example, suppose a business owner doesn’t negotiate a fair break point and percentage to pay the landlord. In that case, they may be unable to afford their rent.
Before signing a percentage lease agreement, a tenant should consult with a lawyer to review the draft. A lawyer will review the agreement with the tenant’s best interests in mind and ensure they are not being taken advantage of.
The tenant’s lawyer will ensure the agreement is fair and realistic based on the tenant’s business plan.
Percentage Lease Agreement Drafting Cost
When a property owner hires a lawyer to draft a percentage lease agreement, they will be charged for the lawyer’s time and services. This can include:
- An initial consultation
- Drafting time
- Follow-up meetings
ContractsCounsel’s marketplace data shows that the average percentage of lease agreement drafting costs is $600.00 across all states.
Percentage Lease Agreement Review Cost
Suppose a tenant hires a lawyer to review their percentage lease agreement. In that case, the tenant will be responsible for their legal fees. Legal fees will include consultations, the time the lawyer takes to review the lease agreement, and any necessary revisions or negotiations.
ContractsCounsel’s marketplace data shows that the average cost to review a percentage lease agreement is $495.63 across all states.
How Do Lawyers Charge for Percentage Lease Agreements?
Hourly Rates for Percentage Lease Agreements
Hourly rates are the most common way that attorneys charge for their time. The lawyer will provide an hourly rate to be approved by the client and log time in a timesheet.
When the lawyer is finished drafting the percentage lease agreement, and legal services have ended, they will invoice the client for their total time. This is the safest way for the lawyer to charge clients because they are covered if the project takes more time than expected.
ContractsCounsel’s marketplace data shows that the average hourly rate for a commercial real estate lawyer ranges from $200 - $350 per hour.
Flat Fee Rates for Percentage Lease Agreements
Flat fee billing structures are becoming more popular for contract drafting projects. Lawyers will provide the client with a flat fee for the requested services. The benefit of flat fee billing is that it gives the client certainty about the project's total cost.
It is important to ensure the client knows what’s included with the fee before starting the project, as it may not include revisions, negotiations, or consultations.
ContractsCounsel’s marketplace data shows that the average flat fee rate for a percentage lease agreement is $507.22.
Get Help with a Percentage Lease Agreement
Do you need help with a percentage lease agreement project? If so, post a project in ContractsCounsel’s marketplace to receive flat fee bids from commercial real estate lawyers to handle your project. All lawyers on the ContractsCounsel’s platform are vetted by our team to make sure you are provided with top tier service.