Texas Percentage Lease Agreement Overview
A percentage lease is a retail lease structure where the tenant pays base rent plus a percentage of gross sales above a defined breakpoint. Texas has no statute governing percentage leases, so the contract language controls everything. Texas's four major commercial markets, Dallas-Fort Worth, Houston, Austin, and San Antonio, are among the largest retail markets in the country, and percentage leases are the standard structure for shopping center tenants across all of them.
The most important threshold issue in any Texas percentage lease is the gross sales definition. Texas imposes a combined state and local sales tax rate of up to 8.25% in many areas. Without an express exclusion of Texas sales taxes from the gross sales definition, the tenant ends up paying percentage rent on taxes collected on behalf of the state, which overstates their actual retail revenue. The exclusion of Texas sales tax from gross sales is one of the first things to confirm in any Texas percentage lease negotiation. Beyond that, the breakpoint structure, percentage rate, co-tenancy protections, and audit rights determine the actual financial performance of the lease for both parties.
8.25%
Max sales tax rate
None
State rent tax
Contract
Law governs
4 Major
Retail markets
Texas Requirements
Texas percentage leases are entirely contract-driven. There is no Texas statute that prescribes the required provisions or defines gross sales for percentage lease purposes. The following provisions must be addressed clearly in the lease to avoid disputes over percentage rent calculations.
Texas Sales Tax and Gross Sales Definitions
Texas imposes a combined state and local sales tax of up to 8.25% in major metros. A Texas percentage lease must expressly exclude sales taxes collected on behalf of the state and local governments from the gross sales definition. Without this exclusion, the tenant pays percentage rent on tax collections rather than on actual retail revenue. Confirm this exclusion is in the written lease before signing.
Key Lease Provisions
- Gross Sales Definition: List specific inclusions and exclusions; confirm Texas sales tax is excluded; address e-commerce orders processed from or fulfilled from the Texas location, particularly for DFW and Houston retailers with active online operations
- Breakpoint Type and Calculation: State whether the breakpoint is natural or artificial; model the financial impact under the specific breakpoint using realistic sales projections for the Texas location before agreeing to any artificial breakpoint proposed by a DFW or Houston shopping center landlord
- Percentage Rate: State the applicable rate by category; Texas retail rate ranges by category should reflect market comparables in the specific trade area (DFW, Houston, Austin, or San Antonio each have slightly different benchmarks)
- Sales Reporting: Monthly gross sales reports with a firm due date; annual certified sales statement; CPA certification for major Texas retail tenants
- Audit Rights: Both parties should have once-per-year audit rights within a defined window after the annual certification; include cost-shifting if the audit reveals a material discrepancy
- Co-Tenancy: For any Texas shopping center location, negotiate co-tenancy protection tied to named anchor tenants or minimum occupancy thresholds; Texas retail markets have seen significant anchor churn in recent years
How to File in Texas
Negotiating and executing a Texas percentage lease requires careful upfront work on the gross sales definition and breakpoint before the lease is signed. The financial outcome over the lease term depends on getting these provisions right.
Negotiate the Gross Sales Definition
The gross sales definition is the most important provision in any Texas percentage lease. Confirm that Texas state and local sales tax is expressly excluded. Address returns, employee discounts, gift card issuances, and online orders placed from or fulfilled from the Texas location. For DFW or Houston retailers with omnichannel operations, the online sales question can involve significant dollars and should be resolved in writing before the lease is signed.
Set the Breakpoint and Percentage Rate
Model both the natural and any proposed artificial breakpoint using realistic sales projections for the specific Texas location. Compare the percentage rate against market comparables for the trade area. In premium Texas retail centers in Uptown Dallas, River Oaks Houston, or South Congress Austin, landlords negotiate aggressively on breakpoints. Understand what comparable tenants in the same center are paying before accepting any landlord-proposed rate or breakpoint.
Confirm Reporting, Audit Rights, and Co-Tenancy
Build in monthly sales reporting requirements with a firm submission deadline. Negotiate annual audit rights exercisable within a defined window after the certified annual statement is delivered. For any Texas shopping center location, negotiate co-tenancy protections tied to specific named anchors. Given the pace of retail change across Texas markets, co-tenancy is a meaningful protection rather than a theoretical one.
Execute the Lease and Distribute Copies
Both parties sign the finalized lease. Texas commercial leases do not require notarization to be enforceable between the parties. Distribute executed originals to landlord and tenant. If the lease is based on a Texas Association of Realtors form, confirm that all percentage rent provisions are properly integrated into the TAR structure rather than attached as riders that could create interpretation conflicts.
Configure Sales Tracking for Texas Tax Compliance
Configure your point-of-sale system to track Texas sales tax separately from net sales and to capture the specific exclusion categories defined in the lease. Texas retailers with high transaction volumes in DFW or Houston need to produce monthly reports that match the gross sales definition precisely, because the landlord will use those reports to calculate annual percentage rent. Set up a reporting calendar aligned with the lease's submission deadlines from day one.
Texas Fees & Costs
A Texas percentage lease has two cost streams: the fixed base rent and the variable percentage rent component. Understanding both is necessary for accurate financial planning.
| Fee / Cost | Amount |
|---|---|
| Base Rent | Fixed monthly amount; the floor below which no percentage rent is triggered regardless of sales |
| Percentage Rent | Typically 2 to 8% of annual gross sales above the breakpoint; rate varies by retail category and Texas trade area |
| Texas Sales Tax (excluded) | State rate 6.25% plus local option up to 2%; total rate up to 8.25% in DFW, Houston, Austin, and San Antonio; must be expressly excluded from gross sales |
| State Income or Rent Tax | None; Texas has no state income tax and no commercial rent tax |
| Attorney Review | $500 to $1,500; recommended for Texas percentage leases in DFW, Houston, or Austin shopping centers given the financial complexity of the percentage rent provisions and TAR form defaults |
Sample Texas Percentage Lease Agreement
Below is a preview of our Texas-specific template. Your customized document will include all fields and provisions required for filing in any Texas county.
PERCENTAGE LEASE AGREEMENT
STATE OF TEXAS
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]
Texas Percentage Lease Agreement FAQ
Answers to common questions about filing a percentage lease agreement in Texas, including requirements, fees, and procedures.
Official Texas Resources
Use these official state resources to verify requirements, find your local filing office, and access government forms for Texas.
Related Texas Documents
Depending on your situation, you may need additional documents alongside your Texas percentage lease agreement.
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