Breakpoint Clause Samples
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Breakpoint. An amount at an annual rate of Three Hundred Fifty and 00/100 Dollars ($350.00)multiplied by the number of square feet of Floor Space of the retail store located within the Demised Premises; and in the event the Tenant exercises its right to extend the Term, the Breakpoint shall be increased in the same proportion as Fixed Rent applicable to such Extended Period is increased. If the Fixed Rent is not increased for such Extended Period, the Breakpoint shall remain the same as the Breakpoint in effect immediately preceding such Extended Period. If for any reason the Fixed Rent is reduced or abated, the Breakpoint shall be reduced in the same proportion as the Fixed Rent is reduced or abated.
Breakpoint. Rarely will a tenant pay percentage rent on the total amount of gross sales generated at the premises; it will pay only to the extent that the gross sales exceed a specified threshold or “breakpoint.” The breakpoint is a fundamental business term that should be addressed in the letter of intent. Often, the breakpoint is the amount of gross sales that would gener- ate percentage rent equal to the minimum rent or base rent. This is referred to as a “natural” breakpoint. For example, if the base rent is $100,000 and the percentage rent is 4 percent, the natural breakpoint for this lease would be $100,000 ÷ 0.04, or $2,500,000. The tenant would pay percentage rent only to the extent that gross sales exceed $2,500,000. If the tenant achieved $2,700,000 in gross sales in a given year, it would pay as percentage rent for that year 4 percent of the $200,000 excess over the breakpoint, or $8,000. There is no requirement that the breakpoint be a natural breakpoint and the leasing lawyer will rarely be involved in the negotiation of the breakpoint. The tenant’s lawyer, however, should be alert to the potential effect of increases in base rent on the breakpoint. Where the breakpoint is a stated amount, and the lease calls for periodic increases in the base rent, the tenant’s attorney should make sure that the client negotiates a pro- portionate increase to the breakpoint. In the same vein, the landlord’s attorney should require reductions to the breakpoint corresponding to reductions in min- imum rent effected by the operation of other provisions in the lease. Say, for instance, that our tenant paying $100,000 base rent and 4 percent over a natural breakpoint suffers a casualty that closes the premises and abates rent for two months during a lease year. Suppose also that this tenant generates $2,400,000 in gross sales during the ten months it did operate during that lease year. Without an adjustment to the breakpoint, the tenant would pay no percentage rent for that lease year even though gross sales would exceed the breakpoint on both an annualized basis (in our example, multiply actual gross sales by 12/10) and a proportional basis (again in our example, multiply the breakpoint by 10/12). Thus the landlord should require that the breakpoint reduce proportionately with any reductions in minimum rent.
Breakpoint. An amount at an annual rate of $500,000.00.