Michigan Percentage Lease Agreement Overview
A Michigan percentage lease is a retail lease structure combining fixed base rent with a percentage of gross sales above a breakpoint. It is the dominant lease structure in Michigan regional malls and large shopping centers. Properties like Twelve Oaks Mall (Novi), Somerset Collection (Troy), Great Lakes Crossing Outlets (Auburn Hills), and Briarwood Mall (Ann Arbor) use percentage leases for most retail tenants. The percentage structure aligns the landlord's income with tenant performance while establishing a base rent floor.
Michigan commercial leases are governed by contract law. The percentage rent mechanics, gross sales definitions, and breakpoint calculations must be written into the lease with precision. Michigan's 6 percent use tax on retail goods should be explicitly excluded from the gross sales definition so tenants are not paying percentage rent on tax collected for the state. Michigan mall markets have seen significant changes in anchor store occupancy, making co-tenancy provisions and exclusivity clauses more important components of any Michigan retail lease negotiation.
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Michigan Requirements
Michigan percentage leases are governed by contract law. The parties must precisely define gross sales, the breakpoint calculation, percentage rates, and reporting obligations. Vague definitions create disputes about what revenue triggers percentage rent.
Michigan Specific Note
Michigan's 6 percent use tax on retail goods must be explicitly excluded from the gross sales definition in any Michigan percentage lease. Without this exclusion, tenants pay percentage rent on sales tax revenue collected for the state rather than on actual business income. Michigan retail tenants should also confirm co-tenancy provisions are tied to specific anchor tenants, given the significant anchor store turnover Michigan malls have experienced.
Key Percentage Lease Provisions for Michigan
- Gross sales definition: Negotiate exclusions for Michigan sales taxes, employee discounts, returned merchandise, credit card fees, and sales from third-party departments. A broad definition significantly increases percentage rent exposure.
- Natural breakpoint: Push for a natural breakpoint calculated as base rent divided by the percentage rate. This ensures percentage rent does not trigger until sales have effectively covered the full base rent obligation.
- Co-tenancy provisions: Given Michigan's mall market volatility, negotiate specific co-tenancy protections tied to named anchor tenants. Include rent reduction remedies and a termination right if anchors close and are not replaced within a reasonable period.
- Audit rights: Both parties should have audit rights. Tenants should retain sales records for the full audit window period and negotiate a dispute resolution process for material discrepancies found on audit.
- CAM reconciliation: Michigan shopping center CAM charges are typically substantial. Negotiate CAM caps on controllable expenses and exclusions for capital items, roof replacements, and management fees above a reasonable cap.
How to File in Michigan
Filing a percentage lease agreement in Michigan involves preparing the document, getting it properly executed, and filing it with the appropriate county office. Follow these steps.
Research the Michigan Location and Foot Traffic Data
Before negotiating a Michigan percentage lease, research comparable tenant sales per square foot in the specific mall or retail center. Michigan mall productivity varies significantly by property. Understanding actual performance benchmarks at the location helps you evaluate whether the base rent and breakpoint are realistic for your business model.
Negotiate Gross Sales Definition and Breakpoint
Negotiate to exclude Michigan use taxes from gross sales. Push for a natural breakpoint. For Michigan tenants with significant online sales tied to physical store operations, negotiate the online sales treatment carefully, as Michigan's retail market has seen increasing omni-channel activity that landlords want to capture in percentage rent calculations.
Negotiate Co-Tenancy, CAM, and Audit Provisions
For Michigan shopping centers, negotiate strong co-tenancy protections tied to specific anchor tenants given the volatility Michigan malls have experienced. Negotiate CAM caps and exclusions. Confirm audit rights for both sales reporting and CAM reconciliations, and establish how disputes will be resolved.
Have a Michigan Retail Lease Attorney Review
A Michigan attorney familiar with retail lease structures in the Detroit metro or Ann Arbor market will identify provisions that deviate from standard practice and ensure the percentage rent mechanics and co-tenancy provisions are appropriate. Attorney rates typically run $250 to $450 per hour.
Execute the Lease and Set Up Sales Tracking Systems
Sign the lease with all parties and retain executed copies. Set up point-of-sale or accounting systems that track gross sales in the format required for reporting. Calendar monthly or annual percentage rent reporting deadlines and establish records retention for the full audit window period specified in the lease.
Michigan Fees & Costs
Below is a breakdown of the typical costs associated with filing this document in Michigan. Actual fees may vary by county.
| Fee / Cost | Amount |
|---|---|
| Michigan Attorney (hourly) | $250 - $450 per hour |
| Base Rent (annual per sqft) | $20 - $60/sqft (varies by center and location) |
| Percentage Rate (above breakpoint) | 2% - 8% depending on retail category |
| CAM Charges (annual per sqft) | $6 - $16/sqft in major Michigan shopping centers |
Sample Michigan Percentage Lease Agreement
Below is a preview of our Michigan-specific template. Your customized document will include all fields and provisions required for filing in any Michigan county.
PERCENTAGE LEASE AGREEMENT
STATE OF MICHIGAN
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]
Michigan Percentage Lease Agreement FAQ
Answers to common questions about filing a percentage lease agreement in Michigan, including requirements, fees, and procedures.
Official Michigan Resources
Use these official state resources to verify requirements, find your local filing office, and access government forms for Michigan.
Related Michigan Documents
Depending on your situation, you may need additional documents alongside your Michigan percentage lease agreement.
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