Kentucky Percentage Lease Agreement Overview
A percentage lease in Kentucky is a retail lease structure where the tenant pays base rent plus a percentage of gross sales once annual sales exceed a defined breakpoint. Kentucky contract law governs these arrangements, and courts enforce the written lease terms without implying obligations not expressly stated. Louisville and Lexington are the primary Kentucky markets where percentage leases appear, primarily in enclosed malls, lifestyle centers, and inline retail space adjacent to anchors.
Louisville's Oxmoor Center, Mall St. Matthews, and other major shopping centers use percentage lease structures for both national and regional tenants. The food-and-beverage sector in Louisville's NuLu and Midtown districts also uses percentage structures for restaurant tenants where high build-out costs create a landlord interest in the tenant's long-term commercial performance. Kentucky imposes no commercial rent tax, so the percentage rent calculation is not complicated by a state tax overlay on the rent obligation itself.
$32
Filing fee
Required
Notarization
0
Witnesses required
County
Filing office
Kentucky Requirements
Kentucky percentage leases must comply with the state's statute of frauds for terms exceeding one year and must clearly document the gross sales definition and percentage rent mechanics to be enforceable.
Kentucky Specific Note
Kentucky courts apply written contract terms as drafted. The gross sales definition in a Kentucky percentage lease determines the entire percentage rent obligation, so every intended exclusion must be written into the lease. Courts will not add exclusions that were not part of the written agreement, even if both parties later claim a different intent.
Document Requirements
- Written Form: Kentucky statute of frauds requires leases for terms over one year to be in writing and signed by both parties
- Gross Sales Definition: A precise written definition specifying all inclusions and exclusions from gross sales is the core percentage lease provision
- Percentage Rate and Breakpoint: The lease must state the percentage rate and the breakpoint calculation method (natural or artificial)
- Monthly and Annual Reporting: Specify the frequency, format, and certification requirements for sales reports and the annual reconciliation process
- Audit Rights: Include the landlord's right to audit the tenant's Kentucky sales records, with frequency, notice, and cost-shifting provisions for material understatements
How to File in Kentucky
Drafting a Kentucky percentage lease starts with agreeing on the sales definition and breakpoint before the parties negotiate any other financial terms.
Research Kentucky Retail Sales Benchmarks
Before drafting, gather historical or projected sales per square foot data for comparable retail uses in the same Louisville or Lexington submarket. National retail chains typically provide historical sales data for comparable stores in their lease negotiations. Regional tenants will need to build projections from comparable locations. The breakpoint must be realistic for the specific location to be meaningful.
Negotiate and Draft the Gross Sales Definition
Draft a comprehensive gross sales definition that lists specifically what is included and what is excluded. For Kentucky retailers, typical exclusions include Kentucky sales tax collected and remitted, customer returns and allowances, employee discount sales, sales from vending or ATM machines, and online orders shipped from a fulfillment center rather than the leased premises.
Set Base Rent, Percentage Rate, and Breakpoint
Document the base rent, the percentage rate (typically 3% to 7% for Kentucky retail depending on category), and the breakpoint. Confirm whether the breakpoint is natural or artificial. For Louisville mall tenants, an artificial breakpoint 10% to 20% above the natural breakpoint is sometimes negotiated as a concession for accepting percentage lease structure.
Add Reporting, Audit, and Record-Retention Provisions
Include monthly sales report requirements with the base rent payment plus an annual certified statement. Grant the landlord one audit right per year with 30 days notice, at landlord's expense unless the audit reveals an understatement exceeding 3%. Require the tenant to retain point-of-sale records and tax filings for at least three years.
Execute and Record
Both parties execute with authorized signatories, with notarized acknowledgment if a memorandum will be recorded. For Louisville (Jefferson County) or Lexington (Fayette County) properties, record a memorandum of lease with the County Clerk to protect the tenant's leasehold interest. The Kentucky County Clerk recording fee is approximately $32 for the first document plus additional charges per page.
Kentucky Fees & Costs
Below is a breakdown of the typical costs associated with filing this document in Kentucky. Actual fees may vary by county.
| Fee / Cost | Amount |
|---|---|
| Base Rent (Louisville / Lexington retail) | $10 - $24 per sq ft annually |
| Percentage Rent Rate | 3% - 7% of gross sales above the breakpoint |
| Kentucky Attorney Review | $750 - $2,500 |
| County Clerk Recording (memorandum) | $32 first document plus per-page fees |
Sample Kentucky Percentage Lease Agreement
Below is a preview of our Kentucky-specific template. Your customized document will include all fields and provisions required for filing in any Kentucky county.
PERCENTAGE LEASE AGREEMENT
STATE OF KENTUCKY
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]
Kentucky Percentage Lease Agreement FAQ
Answers to common questions about filing a percentage lease agreement in Kentucky, including requirements, fees, and procedures.
Official Kentucky Resources
Use these official state resources to verify requirements, find your local filing office, and access government forms for Kentucky.
Related Kentucky Documents
Depending on your situation, you may need additional documents alongside your Kentucky percentage lease agreement.
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