Collecting Percentage Rent from ATM Transactions
Q: I negotiated a “percentage rent” clause in my lease with a “general store”-type tenant at my center. At the time, the tenant didn’t have an automated teller machine (ATM) in its space, but it just installed one at the front of the store, so that customers can access cash when checking out. I assume that the tenant will charge an ATM fee. Will I be entitled to a percentage of the fees it will collect from all of its ATM transactions?
A: Yes, if you included ATM fees in the percentage rent clause in the lease. Otherwise, you might be in for a struggle with the tenant if it doesn’t want to pay.
A percentage rent clause in a commercial lease is valuable to owners because it can add to the revenue they collect from their commercial properties. That’s because a percentage rent clause requires a tenant to pay not only rent to the owner of its space, but also a portion of its gross sales amount. But a percentage rent clause is only as useful as the profit-making items that it includes. In other words, a percentage rent clause should specifically list the items that the tenant must include when tallying up the gross sales that the percentage rent it owes you will be based on.
If the percentage rent clause in your lease doesn’t specifically mention ATM fees in its definition of “gross sales” it means that the tenant might not include the ATM fees it collects in the gross sales amount used to calculate its percentage rent. But ATM fees can really add up—and so can the percentage rent you’re losing.
Commercial lease terms can be several years long, so although ATMs have grown in popularity—popping up in restaurants, bars, supermarkets, variety goods stores like the tenant that you’re dealing with now, cash-only businesses, and other retail settings—your older leases might be missing that specification in the percentage rent clause.
In the future, think about the issue of ATM fees when negotiating your leases. If it won’t create some type of problem, consider allowing tenants to install ATMs—but make sure that you don’t lose out on percentage rent in the process. To get all the percentage rent you’re entitled to, have the lease require your percentage rent tenant to include its portion of the ATM fees collected in its gross sales when calculating percentage rent. If the lease doesn’t mention ATM fees, and a dispute arises, a tenant could argue—and a court could agree—that these fees aren’t meant to be included in gross sales. Unfortunately, that might be the case with your current tenant, but it doesn’t hurt to investigate whether you can collect fees. (As always, ask your attorney about this situation before taking any action.)
To include your tenant’s ATM fees in percentage rent, add the following language to the section of the lease’s percentage rent clause where it lists the items included in gross sales:
Model Lease Language
(x) All fees and revenues collected by Tenant that are generated by the use of automated teller machines (ATMs) located within the Premises.