Percentage Rent in Alberta Commercial Leases

1. Identify the rent structure

Determine whether percentage rent is paid in addition to minimum rent, instead of another rent stream or under a more specialized formula. Schedule the percentage, period, breakpoint and due dates.

Keep minimum rent, additional rent and percentage rent separate. RECA's commercial framework distinguishes these rent categories and includes percentage-rent calculation.

• Minimum rent
• Gross sales definition
• Breakpoint
• Percentage
• Reporting period
• Exclusions
• Audit rights

2. Reconstruct lease-defined gross sales

Start with the exact definition and include or exclude categories only as the lease provides. Address returns, refunds, discounts, taxes, gift cards, deposits, service charges, delivery, wholesale, concessions and other stated items.

Accounting revenue, taxable sales and lease-defined sales can differ. The tenant's reporting schedule should reconcile from source systems to the contractual definition.

3. Address channels and attributed sales

Review treatment of online orders, click-and-collect, delivery apps, ship-from-store, marketplace transactions, phone orders, catering, off-site fulfilment and returns. Define the location and period to which a sale is attributed.

Do not assume digital sales are included or excluded. The lease language and actual transaction flow require legal and accounting review.

4. Calculate the breakpoint transparently

A lease may state a breakpoint or define how it is derived. Where a natural breakpoint is intended, a common arithmetic relationship divides annual minimum rent by the percentage rate; the executed lease controls the actual calculation.

Address stepped minimum rent, partial years, closure, relocation, multiple rates and other adjustments. Show each intermediate input and never infer a breakpoint from marketing shorthand.

5. Build the reporting calendar

Record monthly, quarterly and annual statements, certification requirements, due dates, payment timing, late corrections and record-retention obligations. Identify the legal tenant and reporting entity.

Align lease periods with fiscal, calendar and POS reporting periods. Reconcile any difference rather than carrying an unexplained annual plug.

6. Review audit and verification rights

Schedule access, notice, frequency, confidentiality, accountant requirements, cost allocation, threshold and limitation periods from the lease. Preserve reports, source summaries and correspondence.

An audit right is not permission for uncontrolled collection of customer or employee personal information. Apply proportional access, redaction and professional advice.

7. Address closures and operating covenants

Review continuous-operation duties, permitted closures, casualty, renovation, relocation, seasonal periods and remedies. A store that is closed or trading irregularly can change both reported sales and the landlord's property strategy.

Do not assume a percentage-rent clause guarantees operation or sales. Counsel should interpret obligations and remedies.

8. Reconcile billing and GST/HST

Tie tenant reports to percentage-rent invoices, receipts, accruals, estimates, true-ups, credits and disputes. CRA treats commercial rent as generally taxable, subject to the actual facts and statutory rules.

Obtain tax and accounting advice for the actual charge, reporting entity and adjustment. Lease-defined gross sales and GST/HST consideration are different concepts.

9. Underwrite percentage rent cautiously

Separate contractual minimum rent, trailing percentage rent and forecast percentage rent. Model tenant sales sensitivity, breakpoint changes, use, competition, occupancy cost and lease expiry.

Do not capitalize one exceptional sales period as stable income without supporting evidence. Preserve downside, base and upside scenarios and their sources.

10. Maintain a clause-cited calculation file

Record source clauses, sales inputs, exclusions, breakpoint, rate, period, invoice, payment and outstanding exceptions. Update it with amendments and tenant confirmations.

This guide is educational and is not lease interpretation, legal, tax, accounting, audit, appraisal or investment advice.