Which type of lease incorporates a percentage of profits into the payment structure?

A percentage lease is a type of lease agreement commonly used in retail settings where the lessee (tenant) pays a base rent plus a percentage of their gross sales or profits. This structure aligns the interests of both the landlord and tenant; the landlord benefits from increased sales in the tenant's business, while the tenant enjoys lower fixed costs when sales are low.

In practical terms, percentage leases are advantageous for businesses that can experience significant sales fluctuations. During less profitable periods, the tenant's overall rental expenses remain manageable thanks to the variable component based on their performance. Conversely, when business is booming, the landlord benefits from the increased rent that comes from a share of profits.

This lease type contrasts sharply with the other options provided. A gross lease requires the tenant to pay a fixed amount without any adjustments for additional costs, while a net lease typically involves the tenant covering some of the property’s operating expenses. A modified gross lease is a hybrid that shares some costs but does not incorporate profit sharing in its structure. Therefore, in contexts where profitability directly influences rental payments, the percentage lease stands out as the uniquely relevant choice.