New York State Real Estate Salesperson Licensing Exam

Which types of commercial properties commonly use percentage leases?

1. Office buildings

2. Retail stores/shopping malls

3. Industrial warehouses

4. Vacant land

The correct answer is: Retail stores/shopping malls

Percentage leases are primarily utilized in retail environments such as stores and shopping malls due to the nature of their income generation. In a percentage lease, the tenant pays a base rent plus a percentage of their gross sales. This arrangement aligns the interests of both the landlord and the tenant; landlords benefit from the tenant's success, which can lead to increased rental income as the tenant's sales grow. This leasing method is particularly advantageous in retail settings where sales can be highly variable and are directly influenced by factors such as foot traffic and marketing strategies. In contrast, office buildings typically utilize fixed leases that don't vary based on the tenant's revenue, as rent is based on the physical space and its market value. Industrial warehouses usually have longer-term leases based on fixed rates as well, with less fluctuation in income based on the tenants' sales activities. Lastly, vacant land often involves leases based on a fixed price per square footage or a flat rate, rather than variable amounts tied to performance or sales. Thus, the most suitable context for percentage leases is indeed in retail environments like stores and shopping malls.