Tailor Lease for Tech Tenant

Q: Are there additional factors I should take into account when leasing space to an electronics tenant?

A: Yes. If you’re negotiating a lease with a tenant that primarily sells consumer electronics and appliances, don’t agree to exclude sales of extended warranties, subscriptions, repairs, delivery, and other services from the definition of “gross sales.” Those sales can represent a significant percentage of the tenant’s overall sales depending on the size of the store and the mix of merchandise available there. Excluding items like warranties and other appliance-related services would let the tenant substantially reduce the amount on which percentage rent is calculated.

So don’t agree in the lease to include only sales of “products” in the gross sales definition. An owner might agree to this if it assumes, incorrectly, that the electronics and appliances tenant will generate almost all of its money from sales of products. Even if it turns out that related sales aren’t a significant portion of the tenant’s sales, you’ll still reap some benefit from the inclusion.