Introduction  

 

Would you like to be the landlord and/or manager of a retail property where the minimum rent is assured, while additional percentage rent is earned daily? Rent increases every morning! Percentage rent leases provide this opportunity. However, this opportunity is best realized when the tenant accurately reports the lease-defined sales to the property manager. When a retailer owns thousands, hundreds, or even a single store, it may be that gross sales are underreported. Sales reporting errors may be caused by tenant misunderstanding of lease gross sales definitions, employee errors, deliberate tenant misstatement, or a particular lease that does not conform to a tenant percentage rent sales reporting profile. Major tenants may sense a property manager's fear of auditing them. There are many reasons, or excuses--take your pick--as to why sales are not accurately reported to the property manager as required by the lease.

Some common examples of gross sales reporting errors are:  

  • A bank paying rent based upon a percentage of the month-end balance of customer deposits.

  • Movie theaters not reporting confection sales, and deducting excessive film rental costs from reported sales.

  • Tenants artificially creating sales exclusions.

  • Sub-tenant sales being omitted from reported sales.

  • • Catalog sales, repairs, patronage dividends, sales subsidies and commissions, tenant internet sales returns improperly deducted from unreported internet sales, wholesale sales, concessionaire sales, mathematical errors, overstated employee sales, warranties, employee tips, and credit card fees are often mishandled by tenants for percentage rent calculation purposes.

  • Finally, percentage rent is often reduced by incorrect deductions for tenant improvement costs, real estate taxes, and sales and liquor taxes.

  • Tenants often misstate sales for the initial lease year, which often exceeds twelve months (long lease year).

Additional reasons for tenant sales audits are: rent abatement requests by a tenant, a tenant-exercised non-performance option, and as a follow-up to prior successful sales audits. Our recommendations are always an integral part of our concise, yet thorough, reports. Please review a sampling of some of the numerous reports we’ve completed in our Reports section.

KNOWLEDGE IS POWER.

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