What does a percentage lease typically involve?

A percentage lease is a type of commercial lease agreement that is particularly common in retail settings. It typically involves a base rent that is paid by the tenant to the landlord, along with an additional payment that is a percentage of the tenant's gross sales, over a specified amount. This arrangement aligns the interests of both parties: the landlord benefits from the tenant's success, as the percentage of sales increases with higher sales volume, while the tenant can have lower initial fixed costs.

This flexibility can be advantageous for tenants, especially in the initial stages of their business, as they may be more comfortable taking on a lower fixed rental amount while still being able to meet their financial obligations as their sales grow. The inclusion of a sales percentage incentivizes the landlord to support the tenant's business success.

In contrast, a fixed rental amount only does not provide the motivational structure that a percentage lease creates; a flat fee paid annually does not account for changes in the tenant's performance; and monthly rent based on inflation lacks the dynamic nature associated with sales performance, which is a hallmark of a percentage lease. Hence, option B captures the essence of this lease structure, making it the correct choice.