Percentage Rent Offset
Provisions in retail leases allowing tenants to offset CAM charges against percentage rent obligations, or vice versa, reducing total occupancy cost when sales-based rent is triggered.
Model Lease Language Variations
“Percentage Rent and all Operating Expense charges shall be calculated and paid independently. No offset or credit between Percentage Rent and any other charge under this Lease shall be permitted.”
No offset. Tenant pays both percentage rent and full CAM charges independently. Simplest for landlord but highest total occupancy cost for tenant.
“If Tenant's total occupancy cost (Base Rent + Operating Expenses + Percentage Rent) exceeds the Natural Breakpoint Rent, Tenant may offset Operating Expense charges against Percentage Rent to the extent such charges would cause total occupancy cost to exceed Natural Breakpoint Rent plus Operating Expenses.”
Offset available when total occupancy cost exceeds natural breakpoint. Prevents double-charging: tenant shouldn't pay percentage rent AND full CAM on the same sales dollars.
“Tenant's Percentage Rent shall be reduced dollar-for-dollar by Tenant's total Operating Expense charges (including CAM, taxes, insurance, and marketing fund contributions). In no event shall the combined Operating Expenses and Percentage Rent for any year exceed the Percentage Rent that would have been payable absent any Operating Expense charges.”
Full dollar-for-dollar offset. CAM charges directly reduce percentage rent. Tenant's total exposure is capped at what percentage rent alone would have been.
Calculation Methodology
1. Calculate Percentage Rent: (Gross Sales - Breakpoint) × Percentage Rate. 2. Calculate total Operating Expenses (CAM + taxes + insurance). 3. If offset applies: determine total occupancy cost (Base Rent + OpEx + Percentage Rent). 4. Apply the offset formula per lease terms (usually reduce Percentage Rent by OpEx amount). 5. Tenant's total due = Base Rent + the greater of (i) Percentage Rent minus OpEx offset or (ii) zero, plus any non-offsetable charges.
Common Drafting Errors
Not defining 'Natural Breakpoint' — creates ambiguity over the offset trigger point
Failing to specify which charges are eligible for offset — does the offset include marketing fund, taxes, and insurance, or just CAM?
Not addressing the timing of offset calculations — percentage rent is usually based on annual sales reported after year-end, while CAM is estimated monthly
Omitting floor provisions — without a floor, a large CAM increase could eliminate all percentage rent, reducing landlord revenue in strong sales years
Relevant Case Law
Tenant claimed CAM charges should offset percentage rent dollar-for-dollar. Lease was ambiguous on offset scope. Court applied California's rule of construction against drafter (landlord) and allowed full offset, reducing percentage rent by $340K.
Billing System Implications (Yardi / MRI)
In Yardi, percentage rent and CAM are calculated in separate modules (Percentage Rent module vs. Recovery Billing). Common error: failing to link the two modules so the offset is applied — percentage rent is billed at the full amount without deducting the CAM credit. In MRI, percentage rent offsets require manual configuration in the Percentage Rent Analysis — verify that the offset calculation is automated and reconciled annually.
CapVeri Analysis
Percentage rent offsets are complex and frequently miscalculated in retail properties. The most common error is billing percentage rent and CAM independently without applying the offset, resulting in tenant overpayment. CapVeri cross-references percentage rent and CAM billing to identify missing offsets.
Related Resources
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