Question

Paul's Pizzeria as signed a new five year lease for 1,000 SF of restaurant space in a shopping center in Granada Hills. The base rent on the lease is $3.00/SF, NNN with 3% annual rent increases to account for inflation. However, the lease has a percentage lease clause, that states the lessee will pay an additional 3% of gross annual sales over $1,200,000. Gross sales for the tenant are estimated to be as follows:

Year 1 - $ 1,200,000

Year 2 - $ 1,100,000

Year 3 - $ 1,400,000

Year 4 - $ 1,090,000

Year 5 - $ 1,500,000

What are the estimated annual lease payments for:

Year 1 ?

Year 2 ?

Year 3 ?

Year 4?

Year 5 ?

Answer 1

Lets calculate base rate per SF for all year

Year 1 - $3.00

Year 2 - 3(1+inflation rate)

=3(1+3%)

=3(1+0.03)

=3(1.03)

= 3.09

Year 3 - 3.09(1+inflation rate)

=3.09(1.03)

=3.18$

Year 4 - 3.18(1+inflation rate)

=3.18(1.03)

=3.28$

Year 5 - 3.28(1+inflation rate)

=3.28(1.03)

=3.38$

Another part of lease says that  lessee will pay an additional 3% of gross annual sales over $1,200,000

Now gross annual sales only exceeds $1200,000 in year 3 and year 5

Hence additional rent payable

Year 3 = 3% x (Gross annual sales - 1200000)

=3% x (1400000-1200000)

=3% x (200000)

=6000$

Year 5 - 3% x (Gross annual sales - 1200000)

=3% x (1500000-1200000)

=3% x (300000)

=9000$

Statement showing estimated annual lease payments

Year	SF	Rate per SF	Total Fixed rent	Additional rent	Total Rent
	A	B	C = A x B	D	E = C + D
1	1000	3.00	3000		3000
2	1000	3.09	3090		3090
3	1000	3.18	3180	6000	9180
4	1000	3.28	3280		3280
5	1000	3.38	3380	9000	12380