Hawaii Percentage Lease Agreement Overview
A percentage lease charges the tenant a base rent plus a percentage of gross sales once those sales exceed the breakpoint. This structure aligns the landlord's income with the tenant's success, and it is widely used in Hawaii's retail market, particularly in shopping centers, resort properties, and tourist-oriented corridors. Hawaii's tourism-driven retail economy makes percentage leases especially common because sales volumes in tourist areas can be substantially higher than in comparable mainland markets during peak seasons.
Hawaii's general excise tax creates a specific complexity for percentage leases. Because GET is levied on the landlord's rental income rather than being a direct sales tax, the parties need to clarify whether GET is added on top of base rent and percentage rent separately, and also how GET collected from customers is treated in the gross sales calculation. Most sophisticated Hawaii retail leases address both of these issues explicitly to prevent ambiguity at year-end reconciliation.
$36
Filing fee
Required
Notarization
0
Witnesses required
Bureau
Filing office
Hawaii Percentage Lease Requirements
A Hawaii percentage lease must be in writing for any term exceeding one year. Beyond basic contract formation requirements, a percentage lease has several provisions unique to its structure that must be precisely drafted to be enforceable and practical.
Hawaii: Define GET Treatment for Gross Sales Reporting
Hawaii businesses commonly pass the GET to customers as a visible line item on receipts. Because GET is the landlord's obligation rather than a true sales tax collected in trust, most Hawaii percentage leases exclude GET amounts from gross sales. If your lease does not address this, the GET portion of customer receipts could inflate the gross sales figure and generate percentage rent the parties never intended.
Core Percentage Lease Provisions for Hawaii
- Gross Sales Definition: Define precisely what revenue is included and excluded, with specific attention to returns, GET, and off-site sales
- Breakpoint Calculation: State whether the breakpoint is natural (base rent divided by percentage rate) or artificial (a negotiated higher threshold)
- Reporting Obligations: Define how often the tenant reports gross sales and the form the reports must take
- Audit Rights: Grant both parties the right to audit sales records and specify who pays audit costs depending on the outcome
- Co-Tenancy Protections: Include provisions for rent reduction or early termination rights if anchor tenants vacate and are not replaced
- Exclusivity Clause: Specify the retail category the landlord may not lease to competing tenants in the same center
How to Set Up a Hawaii Percentage Lease
Percentage leases require more upfront negotiation than standard gross or NNN leases because the rent is partly variable. The steps below walk through the key stages of putting a Hawaii percentage lease in place.
Negotiate the Base Rent and Percentage Rate
Start by agreeing on the base rent, the percentage rate applicable to gross sales, and whether the breakpoint will be natural or artificial. In Hawaii tourist retail areas, landlords tend to negotiate higher base rents and lower percentage rates; suburban and neighborhood retail typically sees lower base rents and higher percentage rates.
Define Gross Sales and GET Treatment
Draft a detailed gross sales definition. Specify that GET amounts collected from customers are excluded from gross sales, as well as returns, employee discounts, and sales of assets outside the ordinary course of business. Confirm how GET on the rent itself is billed separately from base and percentage rent.
Set Up Reporting Obligations
Agree on how often the tenant reports gross sales, typically monthly or quarterly, with an annual reconciliation. The tenant must maintain adequate records to support the reports, and the landlord should retain audit rights for a specified period, typically three years after each report period ends.
Address Co-Tenancy and Exclusivity
If the space is in a multi-tenant center, negotiate co-tenancy protections for anchor vacancy and an exclusivity clause preventing the landlord from leasing to direct competitors. These provisions are especially important for percentage lease tenants because foot traffic directly drives the sales that generate percentage rent.
Execute and Distribute the Lease
Both parties sign with authorized signatures. Provide executed copies to each party. A memorandum of lease can be recorded with the Bureau of Conveyances if the parties want a public record of the tenancy without recording the full lease document.
Hawaii Percentage Lease Costs
A percentage lease tenant's total occupancy cost has two components: the fixed base rent plus GET, and the variable percentage rent triggered when sales exceed the breakpoint. Professional fees to negotiate and document the lease are additional one-time costs.
| Cost Item | Typical Range |
|---|---|
| Base Rent (fixed) | Negotiated; Hawaii tourist retail can run significantly above mainland comparables |
| GET on Rent | 4% statewide; 4.5% on Oahu (applied to base rent and percentage rent) |
| Percentage Rent (variable) | Typically 3% to 8% of gross sales above the breakpoint, depending on retail category |
| Attorney Review | $750 to $3,000 given the complexity of percentage lease provisions |
| Memorandum of Lease Recording (optional) | $36 base filing fee at Bureau of Conveyances |
Sample Hawaii Percentage Lease Agreement
Below is a preview of our Hawaii-specific template. Your customized document will include all fields and provisions required for filing in any Hawaii county.
PERCENTAGE LEASE AGREEMENT
STATE OF HAWAII
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]
Hawaii Percentage Lease Agreement FAQ
Answers to common questions about filing a percentage lease agreement in Hawaii, including requirements, fees, and procedures.
Official Hawaii Resources
Use these official state resources to verify requirements, find your local filing office, and access government forms for Hawaii.
Related Hawaii Documents
Depending on your situation, you may need additional documents alongside your Hawaii percentage lease agreement.
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