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. |
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.
7. Rent Sales calculations will need to be run monthly before amortization entries are ran when a percentage rent clause is attached to a lease. See our guide on running Monthly Rent Sales for a walkthrough.