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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:

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'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

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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.

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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%.

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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.

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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.

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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!

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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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