Like most things in commercial real estate law, the percentage rent lease laws were written long before this digital age.

Since the birth and insane growth of online shopping, there has been a bit of confusion and ambiguity on whether or not online sales impacted your lease. What if you had both an online store and a storefront in a mall? Do sales from both count towards the percentage?

As you will read, a lot has yet to be decided. Here’s a look at how the percentage rent lease works and what it looks like in this digital age.

Does My Landlord Get a Percentage of My Digital Sales?

You may not be familiar with the terms of a percentage rent lease and you certainly wouldn’t be alone. They’re prominent enough in retail and mall space leases, but they are not the norm. Basically, you agree to give the landlord an agreed-upon percentage of your sales, once you reach an agreed-upon threshold.

But, what if you have both a storefront and an online store? Do those sales count? This is where the water gets muddied. At this stage, it pretty much needs to be expressly stated in the lease and is somewhat a case-by-case, or lease-by-lease, basis.

The lease typically refers to “gross sales,” which doesn’t include online sales, but does not exclude them either.

The verbiage would have to read something like:

“Gross revenue shall include the sale of all goods, merchandise or services leased or sold at, in or from the Leased Premises (whether or not filled at the Leased Premises) including any sales on computers, tablets, electronic devices or other technology.”

Earlier this year, online shopping actually overtook brick and mortar shopping for the first time ever, which means we may see a shift to how a percentage rent lease works. Only time will tell. But, as more money is made online, the more landlords will want a cut of the online sales from businesses that also operate a store on their property.

How to Avoid a Percentage Rent Lease

Of course, the simple answer is to just avoid the percentage rent lease altogether.

If your landlord is steadfast on including this in your lease, you can still negotiate things in your favor. The first thing you can try to do is negotiate for a higher threshold. Maybe instead of them getting X% of your sales after $500,000 you can bump that up to $800,000.

You can also try to negotiate for a lower percentage of your sales. Maybe try to lower a 6% cut down to 4%.

Yes, adding this to your lease means that your landlord gets access to your financial information, which is a bit intrusive in itself.

If you plan on selling a significant number of your goods online, this is something you are going to want to be very mindful of, as it can really eat away at your profits. Try to avoid the percentage rent lease altogether, or do your best to negotiate the best possible terms to protect your sales.