Tightening Gross Sales Exclusion

Q: The leases I signed with several tenants at my shopping center didn’t mention online sales in the gross sales exclusion provisions in the lease. I recently started mentioning online sales in my leases, but I think that other, new types of sales may arrive in the future. How can I address those sales in the leases I’m currently signing?

A: Every gross sales exclusion takes percentage rent out of your pocket. So you’ll want to stop the tenant from taking exclusions that you didn’t expect it to take. If the tenant starts making money from sales that weren’t mentioned in your lease, you and the tenant could end up in court, arguing about whether those sales should be included or excluded from gross sales, warns financial management consultant Kenneth S. Lamy.

To avoid this, say in your lease’s gross sales clause that if the lease doesn’t permit an item to be excluded from gross sales, the item must be included in gross sales, says Lamy. This way, the clause doesn’t have to mention an item. Even though, for example, an item wasn’t in existence when the lease was signed, the tenant can’t try to exclude it from gross sales, Lamy explains. To do this, add the following language to your lease’s gross sales clause:

Model Lease Language

All monies or other things of value accepted or received by or on behalf of Tenant not herein specifically excluded from Gross Sales shall be deemed to be included herein.

Insider Source

Kenneth S. Lamy: President, The Lamy Group, Ltd., 1303 W. Causeway Approach, Mandeville, LA 70471; (800) 999-5269; www.thelamygroup.com.