Tennessee Realtor State Practice Exam

In the context of real estate licensing, what defines a 'percentage lease'?

1. A lease based on property market value

2. A lease with a fixed rent amount

3. A lease where rent is based on a percentage of sales

4. A lease for short-term rentals only

The correct answer is: A lease where rent is based on a percentage of sales

A percentage lease is defined as a lease where the rental payments are calculated based on a percentage of the tenant's sales revenue. This type of lease is commonly utilized in retail settings, allowing landlords to have a rental income that reflects the tenant's performance and sales success. The concept is particularly advantageous for both parties: tenants may benefit from lower base rent during slower sales periods, while landlords gain when businesses perform well. This arrangement typically includes a base rent and an additional amount that is paid as a percentage once sales exceed a predetermined threshold. This method aligns the interests of both the landlord and tenant since it encourages the tenant to maximize sales, thus potentially increasing the landlord's income. The other options do not accurately define a percentage lease. Market value does not directly influence the lease in this case, a fixed rent amount describes a different type of lease without variable components based on sales, and short-term rentals are not inherently associated with the percentage lease structure.