Is it Common For Malls to Charge % Rent?
Today's topic regards mall RENTS, and how they
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-
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
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
... 'Are Mall Rents FAIR?'
What do YOU think?
The Kiosk Expert