Is it Common For Malls to Charge % Rent?
Dear Friend,
Today's topic regards mall RENTS, and how they
work.
I am going to lead with a QUESTION that I recently
received in my email box:
***
'Is it common for the mall to ask for a % rent of
your sales in addition to a base rent?
What % rent is fair?
I am negotiating with the '.... ....... Mall' and they've
thrown out a 15% rent after a $30K sales threshold
which seems very excessive!'
- Theresa, Minnesota
Yes. It's standard for malls to charge percentage
rent AND base rent.
15% IS the typical percentage.
The easiest way for you to think about this
is that at the end of the day... the malls want
AT LEAST a flat % of your sales... typically 15%.
Because they don't know how WELL you are
going to do... they ask for a 'guarantee', up-
front.
This up-front payment is your 'base rent.'
If... at the end of the month... or time period, 15%
of your sales is MORE than the base rent... you
owe them the difference.
***
For example, suppose a mall is charging $4500 per
month or time period... and 15% percentage rent.
That means you are essentially 'paid up' through
$30,000 in sales.
$30,000 x 15% = $4,500
$30,000 is considered your 'breakpoint'... and for every dollar of sales OVER $30,000,
you would owe the mall 15%.
***
Suppose for a moment that you DON'T hit your
breakpoint... and your sales are only $20,000
during the time period.
$20,000 x 15% = $3000
But you had to pay that $4500 in base rent up
front.
Remember... that was your 'guarantee.'
So... you don't get any of that back. Your rent
for the time period is $4500.
***
On the other hand... let's suppose for a moment
that your sales are MORE THAN $30,000... let's say... $50,000.
Your total cost for rent would be $7500, instead
of $4500... because remember... the malls want
that 15% of your sales.
$50,000 x 15% = $7500
You've only paid them $4500 in base rent... so
you'll owe an extra $3000.
***
That's the way it works.
It can feel 'PAINFUL' to write that $3000 dollar
check to the mall at the end of the time period.
But not TOO painful, because that usually means
you are doing well!
***
Now for the other part of your question:
'Is it FAIR?'
I'm going to save that for another day...
In fact, that sounds like a juicy topic for a
FUTURE update...
... 'Are Mall Rents FAIR?'
What do YOU think?
Stay tuned!
Brady Flower
The Kiosk Expert
