Arizona Percentage Lease Agreement Overview
An Arizona commercial percentage lease combines a fixed base rent with additional percentage rent calculated on the tenant's gross sales above a defined breakpoint. Arizona adds a layer of complexity that other states do not have: the Transaction Privilege Tax. The TPT applies to commercial lease rent in Arizona, including both base rent and percentage rent, and the lease must address which party bears the TPT obligation and whether stated rent amounts include TPT or exclude it as an additional charge.
Phoenix, Scottsdale, Tempe, and Chandler all have active retail commercial leasing markets where percentage lease structures are common in shopping centers, lifestyle centers, and mixed-use developments. Arizona's extreme summer heat creates seasonal sales variability in outdoor and semi-outdoor retail environments, which is a relevant factor when setting breakpoints for tenants in those settings. Arizona contract law governs the entire lease structure, and all provisions must be precisely written into the document.
$30
Filing fee
Required
Notarization
0
Witnesses required
County
Filing office
Arizona Requirements
Arizona has specific requirements for this type of legal document. Meeting these requirements ensures your document is accepted by the county recorder and is legally enforceable.
Arizona Specific Note
Arizona's Transaction Privilege Tax applies to both base rent and percentage rent under a commercial percentage lease. The applicable TPT rate varies by municipality, so the rate for Phoenix differs from Scottsdale, Mesa, and Tempe. The gross sales definition must explicitly exclude TPT collected from retail customers so it does not inflate the gross sales figure used to calculate percentage rent. Attorney review is recommended.
Document Requirements
- Statute of Frauds: Arizona Revised Statutes Section 44-101 requires commercial leases for more than one year to be in writing and signed by both parties
- TPT Allocation: The lease must specify which party pays the Transaction Privilege Tax, whether on base rent only or both base rent and percentage rent, and whether the stated rent is inclusive or exclusive of TPT
- Gross Sales Definition: TPT collected from retail customers should be explicitly excluded from gross sales; the definition should also address e-commerce, returns, and any other revenue categories relevant to the tenant's business
- Breakpoint and Rate: The percentage rate, breakpoint type, and calculation formula must all be written into the lease; Arizona courts will not supply missing financial terms for commercial parties
- Reporting and Audit Rights: Monthly and annual sales reporting deadlines and the landlord's audit rights must be explicitly written into the lease document
How to File in Arizona
Drafting an Arizona percentage lease requires addressing the TPT separately from the percentage rent structure. These steps cover the process with Arizona-specific considerations.
Confirm the Applicable TPT Rate
Before negotiating rent amounts, look up the Transaction Privilege Tax rate for the specific municipality where the property is located. Phoenix, Scottsdale, Tempe, Mesa, and Chandler all have different rates for the commercial lease classification. Decide whether rent amounts will be stated inclusive of TPT or whether TPT is an additional obligation on top of rent, and confirm whether percentage rent is also subject to TPT.
Negotiate Base Rent, Percentage Rate, and Breakpoint
Set base rent at a level that reflects the market and provides the landlord minimum income. Then negotiate the percentage rate, typically four to eight percent for Arizona retail. Determine whether the breakpoint is natural or artificial. Tenants in Arizona shopping centers with strong anchor traffic may accept lower artificial breakpoints. Tenants in more uncertain locations should push for higher artificial breakpoints or natural breakpoints only.
Draft the Gross Sales Definition with TPT Exclusion
Write the gross sales definition to include all revenues from business conducted at the premises, then list specific exclusions. In Arizona, the exclusions list should include TPT collected and remitted in connection with retail sales. Also exclude returns and allowances, employee discounts, and proceeds of sales at other locations. The gross sales definition drives the percentage rent calculation, so every inclusion and exclusion matters.
Specify Reporting, Records, and Audit Rights
Set monthly sales report due dates with specific deadlines. Include an annual certified sales statement requirement. Write in the landlord's audit right with the notice required before an audit, who bears the cost, and what remedy applies if an audit reveals under-reporting above a stated threshold. Arizona courts enforce only what the lease says.
Execute with Authorized Signatures
Both parties sign through authorized representatives. Arizona does not require notarization for the lease to be binding between the parties, but recording with the Maricopa, Pima, or other applicable county recorder does require notarization. Each party should retain an original executed copy.
Arizona Fees & Costs
Below is a breakdown of the typical costs associated with filing this document in Arizona. Actual fees may vary by county.
| Fee / Cost | Amount |
|---|---|
| Base Rent (Phoenix/Scottsdale retail) | $15 - $35 per sq ft annually |
| Percentage Rent Rate | 4% - 8% of gross sales above breakpoint |
| Transaction Privilege Tax (varies by municipality) | 1.5% - 3% of rent |
| Attorney Lease Review | $750 - $2,500 |
Sample Arizona Percentage Lease Agreement
Below is a preview of our Arizona-specific template. Your customized document will include all fields and provisions required for filing in any Arizona county.
PERCENTAGE LEASE AGREEMENT
STATE OF ARIZONA
Legal Document Template
LANDLORD
Name: [Full Legal Name / Entity]
Property: [Shopping Center Name]
Address: [Property Address]
TENANT
Name: [Business Entity Name]
Trade Name: [DBA / Store Name]
Address: [Current Address]
Tax ID: [EIN]
PREMISES
Suite: [Number]
GLA: [Gross Leasable Area SF]
Use: [Permitted Retail Use]
Exclusive: [Product Category]
FINANCIAL TERMS
Base Rent: $[Amount]/month
Percentage Rate: [%]
Breakpoint: $[Amount]/year
CAM: $[Amount]/SF
Deposit: $[Amount]
Arizona Percentage Lease Agreement FAQ
Answers to common questions about filing an percentage lease agreement in Arizona, including requirements, fees, and procedures.
Official Arizona Resources
Use these official state resources to verify requirements, find your local filing office, and access government forms for Arizona.
Related Arizona Documents
Depending on your situation, you may need additional documents alongside your Arizona percentage lease agreement.
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