Include Off-Site Sales in “Gross Sales” Definition

Q:An owner’s standard lease requires its tenants to pay percentage rent on gross sales. But some of the tenants, primarily restaurants, haven’t been paying percentage rent for some deliveries, take-out, and other off-site sales they make. What can the owner do to require that percentage rent be included for these sales as well?

A: Many restaurants generate sales by offering delivery and take-out options. Some also prepare food for sale at other locations, including off-site businesses and mobile vending carts and trucks. Typically, many restaurant leases have a gross sales definition that doesn’t include proceeds from sales and rentals of merchandise, food, beverages, or services by the tenant through business it does off-site.

An owner can plug this loophole by broadening the lease’s definition of gross sales to include orders for the sale or rental of merchandise, food, and beverages that are filled at the space for off-site use or consumption. Gross sales should include proceeds from:

• The restaurant’s deliveries, take-out, and catering services;

• Merchandise, food, and beverage items prepared by the restaurant, but sold at any other location; and

• Sales or rentals of related equipment or services, such as waiting and bartending services.

Show this Model Language to an attorney before adapting it for your leases.

Model Lease Language

a. “Gross Sales” shall also include, but are not limited to, requests for services to be performed or orders taken for sale or rental of merchandise, food, and beverages received or filled by Tenant in or at the Premises, but the performance or delivery thereof is made from or at any place other than the Premises.

b. The parties acknowledge that the foregoing is intended to include in “Gross Sales” the proceeds from:

(i) The sale or rental of merchandise, food, and beverages prepared or sold from the Premises for “off-premises” use or consumption, including, but not limited to, deliveries, take-out, catering, or for sale in any other location of Tenant, its affiliates, or any location of any third party; and

(ii) The sale or rental of all equipment and services provided by Tenant in connection with such sale or rental of merchandise, food, and beverages, including, but not limited to, waiters, bartenders, cleaning staff, dishes, glassware, linens, and silverware.