What is percentage rent and when does it apply in an Ontario retail lease?

Percentage rent is a rent structure, common in shopping centre and mall retail leases, where the tenant pays a base or minimum rent plus an additional amount calculated as a percentage of the tenant's gross sales once those sales cross a specified threshold, sometimes called a "breakpoint." It lets the landlord share in a retail tenant's success beyond the fixed minimum rent, rather than collecting only a flat amount regardless of how well the store performs.

Leases with a percentage rent structure typically require the tenant to report gross sales regularly, often monthly or annually, and usually give the landlord the right to audit the tenant's sales records to verify what's being reported, since the landlord's additional rent depends directly on the accuracy of those figures. Tenants should pay close attention to how "gross sales" is defined, since exclusions like returns, taxes, or online sales fulfilled from the location can meaningfully affect the calculation.

Percentage rent is far more common in larger shopping centres and malls with significant foot traffic than in smaller standalone retail spaces, where landlords have less basis for expecting a meaningful percentage-rent contribution. Understanding both the breakpoint and the definition of gross sales before signing avoids disputes over the calculation later.