Don't Let Movie Theater Tenant Exclude Non-Ticket Sales from 'Gross Sales'

If you're negotiating a lease with a movie theater tenant, don't agree to exclude all sales but ticket sales from the definition of “gross sales,” advises national financial management consultant Kenneth S. Lamy. Among the non-ticket sales this would eliminate are those from concessions, vending and video/amusement game machines, film-related merchandise (including posters), screen advertising, and theater rentals for parties and special screenings. Those sales can represent a large portion of a movie theater tenant's overall sales, he points out. So you would be letting the movie theater tenant substantially reduce the amount on which percentage rent is calculated.

Lamy has seen many movie theater tenants ask to revise the owner's lease so they can exclude all sales except ticket sales from the definition of “gross sales.” Many owners are savvy enough to know that concessions and other revenues should be included in the definition of “gross sales” because they're so lucrative. But even these owners may not realize how large an amount of revenue film-related merchandise sales and theater rentals generate. As a result, they end up losing out on a lot of percentage rent.

CLLI Source

Kenneth S. Lamy: President, The Lamy Group, Ltd., New Orleans, LA 70130