Percentage Lease: CAM Reconciliation in Retail Percentage-Rent Structures
Retail percentage leases combine base rent with a percentage of tenant gross sales. CAM is billed separately - reconciliation follows standard NNN procedures but with unique anchor exclusion and sales-reporting considerations.
Last updated: March 2026
Definition
A percentage lease is a retail lease where the tenant pays a base rent plus a percentage of their gross sales above a specified natural breakpoint - used primarily in regional malls and high-traffic retail centers to tie landlord income to tenant performance.
CAM Reconciliation at a Glance
| Attribute | Percentage Lease |
|---|---|
| CAM Included in Lease | Yes |
| Annual Reconciliation Required | Yes |
| Gross-Up Applicable | Yes — variable expenses |
| CAM Caps Applicable | Yes — by negotiation |
| Common Property Types | regional malls, power centers, strip malls, lifestyle centers, outlet centers, neighborhood shopping centers |
Who Bears Operating Expenses
Tenant pays base rent + percentage rent + CAM charges (typically NNN or modified gross structure). Landlord covers costs above the CAM pool as specified in the lease. Anchor tenants frequently negotiate exclusion from the general CAM pool.
CAM Reconciliation Notes
Percentage leases use separate CAM billing alongside the percentage rent structure. CAM reconciliation follows NNN or modified gross procedures depending on the lease. The primary complexity is anchor exclusions: anchor tenants (department stores, large-format retailers) frequently negotiate separate CAM arrangements or exclusions that reduce the denominator available for in-line tenants. This can significantly increase per-SF CAM charges for smaller tenants.
Formulas
Percentage Rent Calculation
Percentage Rent = max(0, Gross Sales - Natural Breakpoint) x Percentage Rate
| Variable | Definition |
|---|---|
| Gross Sales | Tenant's total reported gross sales for the lease year |
| Natural Breakpoint | Base Rent / Percentage Rate (the sales level at which percentage rent begins) |
| Percentage Rate | Percentage of sales above breakpoint due to landlord - typically 5-7% for retail |
In-Line Tenant CAM Charge (with Anchor Exclusion)
Tenant CAM = CAM Pool x (Tenant RSF / Denominator Excluding Anchor RSF)
| Variable | Definition |
|---|---|
| CAM Pool | Total CAM expenses less any anchor-exclusive costs |
| Tenant RSF | In-line tenant's rentable square footage |
| Denominator Excluding Anchor RSF | Total leasable area minus anchor tenant areas excluded per their lease |
Worked Example
A 200,000 SF strip center has an anchor tenant (80,000 SF) excluded from CAM contributions by their lease. In-line GLA: 120,000 SF. One in-line tenant has 10,000 SF. Total annual CAM pool: $600,000.
Denominator (anchor excluded): 120,000 SF.
In-line tenant pro-rata share: 10,000 / 120,000 = 8.3%.
CAM charge: $600,000 x 8.3% = $50,000.
If anchor were included in denominator: $600,000 x (10,000/200,000) = $30,000.
Anchor exclusion costs this tenant an extra $20,000/year.
Landlord Risks Under This Lease Type
Anchor exclusions reducing the CAM denominator and creating disproportionate CAM charges for in-line tenants
Natural breakpoint calculations being disputed by tenants if gross sales reporting is incomplete or late
CAM pool contamination - including costs associated with the anchor's exclusive areas in the in-line tenant pool
Common Reconciliation Mistakes
- Including anchor tenant areas in the CAM denominator when the anchor is excluded from CAM contributions
- Failing to separate anchor-exclusive maintenance costs from the shared CAM pool
- Missing the reconciliation deadline while also waiting for tenant gross sales reports - these processes should run on separate timelines
Frequently Asked Questions
How does CAM reconciliation work in a percentage lease?
CAM in a percentage lease operates independently from the percentage rent calculation. CAM charges are billed monthly as estimates and reconciled annually against actual expenses - exactly as in a standard NNN or modified gross lease. The percentage rent calculation is separate and based on reported gross sales. Both reconciliations typically happen in Q1 of the following year, but on separate billing timelines.
What is an anchor exclusion and how does it affect CAM?
An anchor exclusion is a lease provision where a major tenant (department store, big-box retailer) is excluded from contributing to - and sometimes from being counted in - the shared CAM pool. When the anchor is excluded from the denominator, the remaining in-line tenants pay a higher per-SF CAM rate because the total CAM pool is divided across fewer square feet. Anchor exclusions are a significant source of tenant disputes in retail centers.
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