Percentage-in-lieu is percentage rent paid instead of, not on top of, a fixed base rent. The tenant pays the landlord an agreed percentage of gross sales as the entire rent obligation, with no minimum. It is common in temporary and specialty leasing, including mall kiosks, carts, and pop-up shops.
How Percentage-in-Lieu Works
Percentage-in-lieu is a single-component rent structure: the tenant pays a set percentage of gross sales and owes no fixed minimum. When sales are zero, rent is zero. Northmarq notes that some leases are structured as percentage rent only, with no base rent, which is typical for short-term tenants.
The math is direct. Rent equals the negotiated rate multiplied by gross sales for the period. If a holiday kiosk agrees to 12 percent in lieu and rings $30,000 in gross sales over its term, rent is $3,600. There is no breakpoint to clear and no base to pay first.
Rates in specialty leasing track the same bands as conventional percentage rent. Northmarq puts retail stores at 5 to 10 percent and restaurants at 6 to 10 percent of gross sales. The rate is negotiated against the tenant's margin profile: high-margin, low-volume sellers accept higher percentages, while thin-margin, high-volume sellers pay less.
Why Percentage-in-Lieu Matters
Percentage-in-lieu is the rent form that moves volume risk onto the landlord and downside protection onto the tenant. The owner collects only when the space sells. The occupant never owes rent it cannot cover from sales. That trade defines who can afford to occupy the space.
For an operator, percentage-in-lieu fills space that fixed rent cannot. A vacant kiosk earns nothing and still carries common area cost. A kiosk on 12 percent in lieu converts idle square footage into a variable revenue line while keeping the tenant solvent through slow weeks. Percentage-in-lieu turns vacancy into optionality, because the landlord captures upside on strong sales without pricing out a tenant who cannot commit to a minimum.
The cost is predictability. A landlord underwriting percentage-in-lieu cannot pencil a guaranteed number, and lenders discount income that swings with sales. The structure fits activation and short-term revenue, not the stabilized base that carries a mortgage.
Example
The example below is a holiday kiosk on a two-month specialty lease, compared under two structures: percentage-in-lieu at 12 percent of gross sales with no base, versus a base-plus-overage lease at $3,000 base with 8 percent over a $37,500 natural breakpoint. The table shows rent owed at three sales levels.
Gross sales (term) | Rent under percentage-in-lieu (12%) | Rent under base + overage |
|---|---|---|
$20,000 | $2,400 | $3,000 |
$37,500 | $4,500 | $3,000 |
$60,000 | $7,200 | $4,800 |
The natural breakpoint is base rent divided by the rate, or $3,000 divided by 0.08, which equals $37,500. At $20,000 in sales, percentage-in-lieu costs the tenant $600 less than the base lease, because the base structure charges its $3,000 minimum regardless. At $37,500, sales sit right at the breakpoint, so the base lease still owes only base rent while percentage-in-lieu has climbed to $4,500. At $60,000, percentage-in-lieu delivers $7,200 to the landlord against $4,800 under base plus overage, a $2,400 gap. Percentage-in-lieu flexes fully in both directions; base-plus-overage compresses the swing.
Variations and Edge Cases
Percentage-in-lieu is most common in specialty leasing, the shopping center practice of renting short-term placements. Formats include carts, kiosks, seasonal stores, and pop-up shops, on terms that run from days to under a year. The rent form and the deal length move together: the shorter and more speculative the occupancy, the more likely rent is pure percentage.
Variation | Behavior |
|---|---|
Pure percentage-in-lieu | Entire rent is a percentage of sales; no base, no breakpoint |
Percentage-in-lieu with floor | A minimum daily or monthly charge applies if sales fall below a set level |
Sliding-scale rate | The percentage steps up or down across defined sales tiers |
Fixed short-term charge | Some carts pay a flat weekly fee, which is not percentage-in-lieu |
Conventional percentage rent | Base rent plus a percentage over a breakpoint, which is not in lieu |
A floor converts pure percentage-in-lieu into a hybrid: the tenant keeps sales-linked rent, but the landlord recovers a minimum, which shifts some volume risk back to the occupant.
Percentage-in-Lieu vs Percentage Rent
Percentage-in-lieu is often confused with percentage rent. Percentage-in-lieu is percentage rent paid instead of base rent, as the whole obligation. Percentage rent, in its standard form, is an additional charge on gross sales above a breakpoint, paid on top of a fixed base rent.
Every percentage-in-lieu deal uses percentage rent, but not every percentage rent deal is in lieu. The distinction is whether a base rent exists. Law Insider's definition captures both: percentage rentals are payments in lieu of or in excess of base rents. In lieu means no base and no breakpoint, so the percentage applies to the first dollar of sales. In excess means a base rent plus overage, so the percentage applies only above the breakpoint.
Frequently Asked Questions
Does percentage-in-lieu have a breakpoint?
No. Pure percentage-in-lieu applies the percentage to the first dollar of gross sales, because there is no base rent to offset. Breakpoints exist only when a lease charges base rent plus percentage rent above a threshold. In lieu means the percentage is the entire rent.
Where is percentage-in-lieu most common?
Percentage-in-lieu is most common in specialty leasing: mall carts, kiosks, seasonal stores, and pop-up shops on terms of days to under a year. ICSC describes specialty leasing as the renting of short-term placements in malls, lifestyle centers, and transportation hubs such as airports.
Who benefits from percentage-in-lieu, the landlord or the tenant?
Both share the risk. The tenant avoids a fixed minimum and never owes rent it cannot fund from sales. The landlord gives up guaranteed income but captures full upside on strong sales and fills space that would otherwise sit vacant.