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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

Brady Flower has FREE Kiosk Profit tips for you!

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

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