NetLease - Percentage Rent Clause
Percentage Rent Clause
Use Case
Percentage Rent Clauses are lease contracts where the lessor receives a base payment and a percent of sales. Using a sales breakpoint, the system will pull sales data for the period and calculate the percentage rent lease payment.
Prerequisite
The Percentage Rent feature must be enabled in NetLease > NetLease Setup > System Setup > System Features.
Step by Step Process
1. Navigate to the lease with a percentage rent clause. NetLease > Lease Management > Lease List > Select view on the applicable lease.
2. Select the create new icon at the top of the screen and select NetLease Contract Provision (alternatively you can create a new contract provision from the subtab: Contract Provisions > All Contract Provisions > New NetLease Contract Provision)
3. Within the new NetLease Contract Provision record, complete the fields as appropriate:
| Field | Description | Example |
|---|---|---|
| Lease | Lease name the provision is being attached to. | LA0054 Computer |
| Provision Type | Percentage Rent clauses are not one of the primary disclosed provisions under the new lease accounting standard, so select Other Contract Provision. | Other Contract Provision |
| Provision Subtype | Provides a more comprehensive listing of the other contract provisions that may be relevant for a lease contract, in this case, Percentage Rent Clause. | Percentage Rent Clause |
| Contract Paragraph/Reference | Refers to the specific section of the Lease Contract where the provision details are located. | Section 2.a.(1) |
| Provision Start Date | The date by which the provision will start. | 1/1/2021 |
| Provision End Date | The date by which the provision will end. | 12/31/2021 |
| Clause Details | Long-text field to capture any relevant information about the clause not captured elsewhere. | Clause must be exercised in writing. |
Create a Percentage Rent Clause record for every period the sales breakpoint resets. If the calculation resets monthly, then create a contract for every month (you can CSV import them). If it is yearly, like in this example, create a clause record for every year.
Rent escalations and de-escalations can also be accounted for automatically by the system by creating multiple Contract Provision Records with the same Provision Start Date and Provision End Date. The records should be identical except for the Breakpoint and percentage. The system will auto-apply the breakpoints in order, so as soon as the new breakpoint is hit, every additional dollar is expensed at the new percentage.
4. Once Percentage Rent Clause is selected as the subtype, the following fields will appear. Complete the fields as applicable:
| Field | Description | Example |
|---|---|---|
| Breakpoint Type | The breakpoint sales type used in the Contract. Select Natural or Artificial: Artificial = Threshold negotiated as part of the contract Natural = Threshold will be calculated (Base Rent for Period / Contract Percentage) | Natural |
| Contract Percentage | Percentage of sales over breakpoint to be paid out as rent. | 5.0% |
| Base Rent for Period | Total amount of base rent for the clause period. (This is a populated field from the system) | 6,000 (Calculated) |
| Sales Breakpoint | The sales threshold for the clause period after which percentage rent must be paid out: Artificial = Enter a number here Natural = Calculated number (Base Rent for Period / Contract Percentage) | 120,000 (Calculated) |
| Sales Search | Specify the saved search to gather the sales data. Default option is the NetLease Percentage Rent Sales search. Create a customized sales search to match the search guidelines to the contract. This will usually be specific for each lease record and percentage rent clause. | NetLease Percentage Rent Sales |
| Payment Frequency | How often the percentage rent payment is made. | Annually |
| # of Months Paid in Arrears | The difference in months from the relevant sales transaction period to the invoice on which the percentage rent payment is paid. Example: Percentage Rent payment based off sales from October paid with the November lease payment would be one month paid in arrears. | 1 |
5. Select Save.
6. The contract provision can be edited or terminated by navigating to the lease record and then going to Contract Provisions > Other Contract Provisions > Select Edit next to the Percentage Rent Clause.
Monthly Processing
The percentage rent expense calculation is based off the accumulated sales to date. The sales number will need to be entered on the NetLease Schedule Line record before the amortization can be run for the month when a percentage rent clause is attached to a lease. See our guide on running Monthly Rent Sales for a walkthrough of options and how the monthly transaction and bill are processed.
