Hawaii Pre-Licensing National Practice Exam

What type of lease would likely be used to base rental payments on a department store's sales?

1. Fixed lease

2. Gross lease

3. Net lease

4. Percentage lease

The correct answer is: Percentage lease

The correct choice is a percentage lease, which is commonly used in retail settings, particularly by department stores. In this type of lease, the rental payments are structured as a percentage of the tenant’s sales revenue, rather than a set amount. This arrangement aligns the interests of both the landlord and the tenant; as the store's sales increase, so do the rental payments, allowing the landlord to benefit from the tenant’s success. Conversely, during slow sales periods, the rental costs are lower, providing the tenant with financial flexibility. A fixed lease would typically involve a set rental amount that does not vary, regardless of the tenant’s sales performance. This may not be suitable for businesses that experience fluctuating revenues. A gross lease might cover all operating expenses, but it usually entails paying a set monthly amount rather than basing rent on performance. Similarly, a net lease often requires the tenant to pay additional costs like property taxes and insurance, typically involving a fixed payment rather than a variable one based on sales. Thus, the percentage lease is the most appropriate structure for aligning rental payments with sales performance in a retail context.