Aligning Interests Through Revenue Sharing

Entertainment tenant leases often include percentage rent — additional rent triggered when a tenant’s gross sales cross a set threshold. Done right, these clauses align landlord and tenant interests. When the venue wins, you win.

Here’s what to negotiate carefully.

Set the Breakpoint Realistically

The breakpoint is everything. It’s the sales floor above which percentage rent kicks in.

Set it too low, and you punish the tenant during ramp-up. Set it too high, and you never see meaningful percentage rent. The right breakpoint reflects stabilized performance — not opening-year projections.

Most entertainment concepts need 12–24 months to build awareness and programming before hitting full stride. Build in a ramp-up period. It protects the tenant early and positions you for upside once the business matures.

Define Gross Sales Precisely

Entertainment venues generate revenue from multiple streams: activity fees, food and beverage, private events, league fees, merchandise, and ancillary services. The lease must spell out which streams count toward the percentage rent calculation.

Exclusions for taxes, tips, and select promotional discounts are standard. But watch over-exclusions — they can hollow out the entire provision. Model several scenarios before signing off on the definition.

Account for Seasonality

Entertainment venues cycle hard. Holiday and summer months drive strong revenue. Post-holiday winter can be thin.

Annual percentage rent calculations smooth out those swings and simplify administration. Monthly calculations create noise. For newer concepts still establishing their seasonal rhythm, build in early-year flexibility. A reasonable lease structure now builds a stronger relationship long-term.

williamscapitaladvisors.com | (213) 880-8107 | francisco.williams@williamscap.ai