Are You Tired Of Arguing About Percentage Rent For Internet Sales?

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We think too much time has been wasted over the issue of “internet sales” in the context of percentage rent. A long time ago, Ruminations shared some thoughts about the principles behind what should and what shouldn’t be treated as part of a tenant’s gross sales for percentage rent purposes. That blog posting can be seen by clicking: HERE. In that posting, we promised that the “whole subject of “internet” and similar sales will be tackled by Ruminations, but not today.” That was then; this is now.

Today, breaking with our tradition (as can be verified by reading our 329 previous blog postings), we’ll be “record” short and still suggest a practical approach to handling this over-argued, over-negotiated issue. It is based on our belief that if the “location” or the “symbiosis” of the landlord’s project (read that: shopping center) added value to a sale, and if the tenant agreed to pay percentage rent in the first place, then orders placed at the store or paid for at the store or fulfilled using the store’s inventory, should be credited as a sale from the store.

Now, if we wanted to write this posting using our usual 1500 to 2500 words, we would offer a definition for “gross sales.” After all, it seems to us that no two lease forms use the same definition. It also seems that most leases use a definition of gross sales drafted by a committee. For those unfamiliar with this disparaging characterization, it is derivative of this figure of speech: “A camel is a horse designed by committee.”

So, though we reserve the right to offer-up a definition for “gross sales” in a later blog posting, for now we suggest that whatever definition you use, just delete all of those convolutions designed to make sure that the landlord doesn’t get cheated out of (rarely realized) percentage rent and then twisted beyond recognition so that the tenant feels comfortable that it isn’t going to pay (rarely paid) percentage rent on merchandise for which the store really sees no revenue. [Does that last sentence seem as convoluted as your definition of “gross sales”? We hope so. That’s the point.]

Then, after deleting all of that “internet” language, just add an exclusion for “True Outside Sales” and use the following definition for that defined term:

A “True Outside Sale” means the amount paid, even on credit, for merchandise ordered or purchased by a customer other than from within the Leased Space and not having either or both of the following attributes: (a) it was paid for, even on credit, within the Leased Space; (b) the merchandise order was fulfilled from inventory maintained at the Leased Space. Merchandise ordered by a customer using electronic or other means from inside the Leased Space does not qualify as a True Outside Sale. Merchandise otherwise qualifying as a True Outside Sale and shipped to the Demised Premises in a separate package identified for the particular customer will be a True Outside Sale.

Landlords, take heart, when a customer picks up an order at the Leased Space, or retrieves an order shipped there by Amazon or another seller to a “locker” system within the Leased Space, that customer is far more likely to buy something else at your shopping center than one who stays at home waiting for the package to arrive.

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Comments

  1. Fredric J Gruder says:

    A fair solution. But do you think the landlord will accept such an approach?

  2. David Graham says:

    @Fredric J Gruder, yes.

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